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| 5/27 |
| 2004/10/27-28 [Finance/Investment] UID:34389 Activity:moderate |
10/27 Russia mulling switch to Euros for oil:
http://www.rense.com/general58/opil.htm
Just in case people still believe world opinion doesn't matter and we
can do whatever we want, this could torpedo the US economy ...
\_ Russia? Please post figures for how big the Russian economy is
vs. the US, the EU, Japan, and Zambia. Their economy is itty
bitty. I'd be more upset if, say, Australia converted to the Euro.
They have a real economy, a real legal system, they're not as
risk for revolution or coup every day of the week, and a very
major trading partner.
\_ So since the German Mark, the British Pound, the Russia Ruble,
and the Italian Lira aren't used for oil figures, their economies
must be torpedoed?
\_ Boy, thanks for that fascinating analysis. Do you actually
understand that the Euro and Dollar are much different from
these other currencies?
\_ The Lira and the Mark are not even in use anymore.
\_ Yen. Whatever. Point remains.
\_ No, it really doesn't matter one whit. The currency trade
is in the order of a trillion dollars a day. Dollars and Euro
are both so liquid, this will have no effect, unless there is
a psychological one.
a psychological one. \- your brain has been
classified as: small.
\_ Um, yes it does. Oil is a hugely important commodity, if
the major oil producers start trading that in Euros, and
the dollar continues to suck while the Euro holds strong,
the dollar could stop being the world's default currency.
Once *that* happens our free ride in terms of borrowing
money forever is over.
\_ isn't that a good thing? wouldn't that force us to
start balancing budgets and stop having a huge portion
of our taxes go to paying interest?
\_ In the long-term it's a good thing, but in the short
term it's a world of pain.
\-The motd is to small for a an(other) econ lecture
\-The motd is too small for a an(other) econ lecture
but if you want to learn about the advantage of
controlling the "key currency", you should read
about "seignorage". The amount of "literal
eurodollars" [actual dollar bills] held are sort
of a free loan [as in we dont have to pay interest
to the person holding the dollar] to the US.
I think this is like half a trillion dollars.
Based on your belief about interest rates you can
calculate what the value of not having to pay
interest on that is. In smaller terms, it is also
much more convenient when you travel to be able
to directly convert from from dollar ... somebody
going from thailand to columbia has to convert
through the dollar. Upshot: in terms of the US
economy of 10trillion, this isnt a huge deal,
but to say there is no effect is just a priori
wrong ... it's going to have an effect in the
10tens of billions of dollars at least. There are
some other [possibly positive] effects based on
tighter control of the money supply and less need
to sterilize currency flows, but that and effect
on exchange rates are too complicated to get into
[you have to agree on a theory of demand for
the dollar and some beliefs on equillibrum ten-
dencies for your exchange rate regime] ... and i'm
not even sure what to say about this off the
top of my head. --psb
\_ That is why "unless there is a psychological one."
The actual amount of Russian Dollar/Euro trade is
infinitesimal, but if everyone in the world followed
Russias lead, then there would be an effect. Even
if they did, the effect would be small, unless it
happened suddenly. |
| 5/27 |
|
| www.rense.com/general58/opil.htm By Never Surrender Rumor Mill News 10-27-4 President Vladimir Putin said Thursday Russia could switch its trade in oil from dollars to euros, a move that could have far-reaching repercussions for the global balance of power -- potentially hurting the US dollar and economy and providing a massive boost to the euro zone. That would be interesting for our European partners," Putin said at a joint news conference with German Chancellor Gerhard Schroeder in the Urals town of Yekaterinburg, where the two leaders conducted two-day talks. "Putin's putting a big card on the table," said Youssef Ibrahim, managing director of the Strategic Energy Investment Group in Dubai and a member of the US Council on Foreign Relations, an influential body of leading world thinkers thought to help set the United States' foreign policy agenda. "In the context of what is happening worldwide, this statement is very important," he said. Putin's words come in the wake of a protracted drive by the EU to attract more countries' trade and currency reserves into euros, in a bid to chip away at US hegemony over the global economy and money supply. A move by Russia, as the world's second largest oil exporter, to trade oil in euros, could provoke a chain reaction among other oil producers currently mulling a switch and would further boost the euro's gradually growing share of global currency reserves. That would be a huge boon to the euro zone economy and potentially catastrophic for the United States. Dollar-based global oil trade now gives the United States carte blanche to print dollars without sparking inflation -- to fund huge expenses on wars, military build-ups, and consumer spending, as well as cut taxes and run up huge trade deficits. Almost two-thirds of the world's currency reserves are kept in dollars, since oil importers pay in dollars and oil exporters keep their reserves in the currency they are paid in. This effectively provides the US economy with an interest-free loan, as these dollars can be invested back into the US economy with zero currency risk. If a Russian move to the euro were to prompt other oil producers to do the same, it could be a "catastrophe" for the United States, Ibrahim said. "There are already a number of countries within OPEC that would prefer to trade in euros." And after the war in Iraq, there is growing debate in the United States' traditional ally Saudi Arabia on a switch too, though its government has not come down firmly on one side, Ibrahim said. "There is a revision going on of its strategic relationship with the United States. Slowly more power and muscle is moving from the United States to the EU, and that's mainly because of what happened in Iraq," he said. Putin had previously brought up the proposal to switch to euros as prime minister in October 1999, at a meeting of EU leaders in Helsinki. Then, in an attempt to forge a new bloc to counterbalance the United States, he made the proposal alongside calling for closer cooperation between Russia and the EU, including on security issues. Since then, however, Russia's ties with the United States have warmed considerably -- and it is unclear whether Putin would risk damaging that relationship by going ahead with the euro move, analysts said. "Putin is very much interested in changing the structure of OPEC and he cannot do that without the United States," said Alexander Rahr, an expert on Russia at the German Council on Foreign Relations. And, he wants to get contracts for the Russian oil industry in Iraq -- for this, too, he needs the United States." But there will be great opposition to this from the United States." He said that while a switch would have no direct impact on the Russian economy, it would give a great boost to the euro zone. Lukoil vice president Leonid Fedun said Thursday that he saw no problem in the euro switch and that payments for such transactions would be minimal, at just 008 percent. If the state decides to do this, then we will support this initiative. From the point of view of the economy, there's no difference," Interfax quoted him as saying. But even Fedun could not help putting a political price tag on the move. "We are ready to move to the euro if the country will be included in a visa-free regime with Europe," he said. Rahr agreed that the timing of the statement seemed calculated to extract political concessions from the EU. Gavrilenkov suggested Putin was also angling for EU concessions on other issues discussed in Yekaterinburg, such as terms for Russia's WTO accession. |