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This doesn’t matter, really, it doesn’t

President Xi has ambitions to challenge the global dominance of the dollar. One way to do that would be to start trading oil and gas in renminbi.

Saudi Arabia, the world’s largest crude oil exporter, has traded oil entirely in dollars since 1974. But talks about pricing sales to China, Saudi’s largest trading partner, in renminbi have been accelerating.

Given that we’ve got large and liquid FX markets what the oil is priced in doesn’t matter a damn. Takes 10 minutes and 0.01% of thje amount to transfer £ to $ and so on.

Sure, if your currency doesn’t have a liquid market – like those of countries that try to peg the value – then you’ve a problem. But those problems aren’t because4 oil is in $, it’s because you’ve a pegged currency and thus no liquid market.

10 thoughts on “This doesn’t matter, really, it doesn’t”

  1. Isn’t it something that reduces the need for other countries to hold as much USD as they do, and therefore something that might matter a lot to the US itself? There must be an awful lot of dollars circulating the globe that Mr Fed doesn’t want to see coming home.

    I have heard it said that the US government/economy is very heavily dependent on the dollar’s international status, and previous threats to that have been responded to with quite some might, although I feel that the important of oil, specifically, in all that may be overstated.

  2. “Given that we’ve got large and liquid FX markets what the oil is priced in doesn’t matter a damn. Takes 10 minutes and 0.01% of thje amount to transfer £ to $ and so on.”

    Its not a problem for the buyer, no. Exchange your own currency for dollars, pay for oil, get oil. Not really a problem for the seller either, they either exchange the dollars back to their local currency, or use them to buy stuff internationally.

    But it rather does matter for the US, because if the oil price was denominated in something else then there wouldn’t be the demand for dollars around the world that there is now, for all the international trading that goes on in all commodities, not just oil. That demand for dollars allows the US to print them and spend them without debasing its currency. It allows it to live way beyond its means but not pay the price (debasement of currency and inflation). If international trade moves to being transacted in another currency, then all those dollars floating around the world, which non-US people hang on to as trading capital will be looking for a new home, as people look to sell them and buy the new international trading currency, and the price of dollars will plummet. Cue massive inflation in the US, and a sudden reduction in purchasing power, ie they become a lot less wealthier than they thought they were.

    If China can supplant the dollar as the global trading currency, they make themselves wealthier and more powerful, and reduce the wealth and power of the US, all without firing a shot. Its a no-brainer, if you are aiming to be a global super-power, maybe THE global superpower.

  3. That’s what’s known as seigniorage. Sure, it exists. Worth about $20 billion a year to the Federal Reserve (whose profits go to the Treasury). According to P Krugman at least, and that’s about right too. In a $28 trillion economy that’s a rounding error, not an important number.

  4. Bloke in the Fourth Reich

    Is there not a liquid market in Hong Kong Dollars?

    I thought it was in the top 10 most traded currencies, and it has been US dollar pegged for about 30 years.

    Merry Christmas all.

  5. ” In a $28 trillion economy that’s a rounding error, not an important number.”

    Half of the printed US banknotes are circulating outside the US, so thats $1tn held by foreigners just in actual bank notes. Then there’s eurodollars, which are estimated to be around $12-13tn. So basically there’s about 50% of the entire US economy floating around the world not causing inflation in the US.

  6. Seeing as the Chinese own most of the USA’s debt, I’d have thought that the remnimbi nwas a de facto reserve currency anyay.

  7. I believe that the need to convert one currency into dollars to make a purchase and then there is a reverse conversion on the other party’s part, gives the US a chokepoint enabling it to tell American banks not to make the conversion for any particular party, be it a country, company or an individual. Perhaps it could be handled with suitcases full of hundred dollar bills, or containers of commodities, but it is inconvenient.

    It’s a pretty strong chokehold. A few years ago the US sanctioned Carrie Lam, Hong Kong’s gov, during its crackdown and she couldn’t even open a bank account with a Chinese bank. The government was forced to pay her in cash and it just piled up around her house.

  8. When we were children we gambled with Cowrie shells. It worked perfectly well; all you need are other people prepared to accept Cowrie shells in payment of debt.

  9. If you listen to Krugman you need your head examining. Man’s a moron. And don’t give me the ‘Nobel prize winner’ schtick either. All that tells you is he’s so far up the global elite’s arsehole that he needs a telescope to see daylight. Nobel prizes are just baubles given to those who toe the globalist line. See the ones given to the pair who developed some bit of jiggery pokery that enabled the global elite to stick mRNA vaccines in a few billion arms.

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