So why is America an economic 'Empire'?

[Felch]

People use dollars because they choose to. Russia tries to push the ruble, the EU tries to push the Euro, Britain used to have the premiere reserve currency, but the dollar is still generally preferred.

Personally I try to buck trends. I sell weed for 20 Swiss Francs per avoirdupois dram.

[Traianvs]

Yes, that's the whole point of the article, but that conclusion is dumb. If oil somehow went away tomorrow as an energy commodity, the dollar would be stronger and more relevant.

And why is that?

[KrazyHorse]

The ONLY EFFECT that somebody passing a "law" that all oil exchanges has to take place in USD is to increase demand for USD by enough to provide liquidity to the market. This is very small. What OPEC chooses to do with the dollars that they receive from oil sales is the same thing that they would choose to do if they received euros. if they want to hold dollars they will keep the dollars, whereas if they originally received euros they would sell the euros for dollars (and vice versa).

[Aeson]

The fact that they would choose to do so is completely independent of what currency the original transaction was in.

What about the costs involved in exchanging currency?

[KrazyHorse]

People use dollars because they choose to. Russia tries to push the ruble, the EU tries to push the Euro, Britain used to have the premiere reserve currency, but the dollar is still generally preferred.

Reserve currency and transaction/pricing currency are two completely separate issues. Being a major reserve currency is far more important because by definition this means that other people hold large stocks of your currency, which is like an interest-free loan.

[KrazyHorse]

What about the costs involved in exchanging currency?

There are minor transactions costs, but I think you are probably overstating them in your own mind. People who do actual bulk purchasing of oil on the international market have access to the best financial services available, meaning that the bid ask spread for them is negligible on fx transactions involving any of the world's top 10 currencies. On the order of 0.02%.

[Felch]

Yeah, they're separate, but I'd bet that they could be strongly correlated. A smart government would want to hold reserves of the currency that people are going to be using for international transactions. But that's not to say they're the same.

[KrazyHorse]

Honestly, for major currencies, indices and commodities only retail investors need to worry about transactions costs. The big boys don't.

[KrazyHorse]

A smart government would want to hold reserves of the currency that people are going to be using for international transactions.

Why?

[Felch]

And why is that?

Maybe he thinks America would have a greater share of the new energy source than it does of global stocks of oil. Just my guess.

[Traianvs]

And THAT is what you're basing your argument around? How ****ing smart do you have to be to see through that ridiculous nonsense?

I simply put forward the article to hear some opinions about it, since I'm not particularly up-to-date about the specifics of oil transactions which is mainly because most of time it's boring like hell.

[KrazyHorse]

You're not "up to date"?

You don't know anything about basic mathematics is more like it.

[Felch]

Why?

In case you're in a long drawn out war. It something I half-remember from history class, about the need that countries have for stocks of hard currency if they want to buy things from neutral powers. America wanted dollars during WWI because we weren't going to take a bunch of worthless scrip. It might be wrong, but it made sense at the time.

Basically, you need the cash you plan to use for international trade to be as liquid as possible. If some sort of crisis breaks out, and faith in whatever funny money you're printing disappears, you're going to want some dollars in the bank.

[Traianvs]

Right.

[KrazyHorse]

In case you're in a long drawn out war. It something I half-remember from history class, about the need that countries have for stocks of hard currency if they want to buy things from neutral powers. America wanted dollars during WWI because we weren't going to take a bunch of worthless scrip. It might be wrong, but it made sense at the time.

I don't understand what this has to do with why you think that reserve currencies and pricing/transaction currencies would be the same. Imagine I'm Moldova, and I'm worried that I might have to fight those Bulgarian bastards one day. Now, there's obviously some utility to holding a hard currency (i.e. something other than the Moldovan Leu). What does the fact that prices are quoted in dollars have to do with why I would choose to hold dollars over euros?

Basically, you need the cash you plan to use for international trade to be as liquid as possible. If some sort of crisis breaks out, and faith in whatever funny money you're printing disappears, you're going to want some dollars in the bank.

Yes, but euros to dollars trade won't be interrupted because Moldova goes to war. Why should i prefer one over the other, based solely on market pricing units? They're easily interchangeable. What should make me prefer to hold one has to do with exchange rate risk. And that risk would be present no matter which currency things were denominated in.