Selling Oil For Euros Instead Of Dollars

[VetLegion]

I'm looking for an economist's perspective about this.

Some have said that Iraq was invaded because it was going to sell its oil for euros instead of dollars. Now some are saying that Iran is being threatened for exactly the same thing. It plans to open an oil market in euros on 20. March.

Could someone explain to me in layman's terms what advantage exactly does USA have when, say, EU and Japan buy oil from Iran in dollars?

Why should USA care?

I can't figure out whether this is another crazy conspiracy theory or whether it has some substance in it.

[Whoha]

the only real advantage it gives us is that we can inflate our currency with less short term repercussions, which we shouldn't do in any event.

Iran is only a small piece of the pie though, their switch to Euros won't mean much if the other countries don't follow suit. Also, between refining capacity, and the US being such a big customer, we can probably force them to sell to us in dollars.

[Dauphin]

Interest free loans.

[VetLegion]

So, how exactly can US inflate currency with less repercusions?

Money is money. If you print too much you get inflation. I don't see what is the difference if you only do it in USA or half the world.

[Last Conformist]

I won't pretend I entirely understand the issue, but economists are indeed worried that a shift from dollars to euros (or yens or rands or whatever) in the oil business could hurt the US economy.

That this worry should be the reason for the Iraq war and the sabre-rattling against Iran, however, I think we can safely dismiss as tinfoil-hattery. It's not as Shrub et consortes don't have enough more serious reasons to dislike Saddam, Ahmadinejad, Khamenei, et al.

[Kontiki]

A couple of short points:

1) Oil is, obviously, a major global commodity. If it is being sold in dollars, there will be a strong demand for dollars, inflating the value of the US greenback.

2) The US imports far, far more than it exports. A weaker dollar means an even wider trade gap and more expensive imports, many of which the US simply isn't in a position to replace with domestically produced goods.

[Dauphin]

Originally posted by VetLegion
So, how exactly can US inflate currency with less repercusions?

Money is money. If you print too much you get inflation. I don't see what is the difference if you only do it in USA or half the world.

Simple explanation:

You need dollars to buy oil, so you have to get them off the US or hold a reserve of dollars. To do so you sell something of value to the US like goods or services. Until those dollars are spent to buy goods and services from the US then the US has an interest free loan. Thus any inflation will decrease the real value of the loan and the US effectively makes money out of you through inflation, because you had to buy and hold dollars.

[VetLegion]

Originally posted by Kontiki
A couple of short points:

1) Oil is, obviously, a major global commodity. If it is being sold in dollars, there will be a strong demand for dollars, inflating the value of the US greenback.

2) The US imports far, far more than it exports. A weaker dollar means an even wider trade gap and more expensive imports, many of which the US simply isn't in a position to replace with domestically produced goods.

A weaker dollar makes imports to USA more expensive and encourages domestic production and export. Which is just what USA needs, no?

[VetLegion]

Originally posted by Dauphin



Simple explanation:

You need dollars to buy oil, so you have to get them off the US or hold a reserve of dollars. To do so you sell something of value to the US like goods or services. Until those dollars are spent to buy goods and services from the US then the US has an interest free loan. Thus any inflation will decrease the real value of the loan and the US effectively makes money out of you through inflation, because you had to buy and hold dollars.

Of course, in an inflationary situation someone who holds cash gets ripped off. But it's impossible to separate the domestic and the international supply of dollars, no? If holders of dollars outside US suffer from inflation, so do holders of dollars in the USA. You can't rip off foreigners without ripping off all. Correct?

[Kontiki]

Originally posted by VetLegion


A weaker dollar makes imports to USA more expensive and encourages domestic production and export. Which is just what USA needs, no?

In theory, maybe. But it also makes imported raw materials (oil comes to mind ) more expensive, and it's not like there's just factories sitting idle waiting to make the exact same things the US currently imports from Asia. Remember, about 80% of the economic activity in the US is in the service sector.

[Fake Boris]

Originally posted by VetLegion
So, how exactly can US inflate currency with less repercusions?

Money is money. If you print too much you get inflation. I don't see what is the difference if you only do it in USA or half the world.

As oil prices increase, and consumption, more people need to buy USDs, so it prevents some devaluation. And also it forces everyone to keep large reserves of dollars, which puts them in a relationship of dependency with America, on many grounds. For instance they can't start converting their dollars without diminishing the value of their remaining assets, which forces them to keep buying dollars, allowing the US to print more of them. The influx of 'forced' foreign investment helps the American economy, and the exchange rates allows it to import goods for less than their 'real' value.

[Dinner]

Originally posted by VetLegion
So, how exactly can US inflate currency with less repercusions?

Money is money. If you print too much you get inflation. I don't see what is the difference if you only do it in USA or half the world.

It is a supply and demand issue. If everyone else is using your currency then more people are holding and circulating that currency. That means demand for the currency becomes higher as more people want to use the currency so the nation whose currency dominates global trade gets something of a boost in that they can print more bills without seeing the value of the currency decline as quickly.

[Barnabas]

Isnt it an unfair position?

[Tattila the Hun]

Since when has "unfair" stopped nations from doing stuff?

[Barnabas]

That they just can print green money to buy goods with no bad consecuences seems unfair to me.