Mullah, can you spare a euro?

April 21, 2003 10:17 PM

It started in November of 2000, with Iraq wanting to switch to the Euro for oil payments. Following recent events, Muslims at large are thinking about dropping US currency for the Euro. With a large US presence now in the Middle East, this event may never occur.

Related Stories
http://www.informationclearinghouse.info/article1554.htm
http://politics.guardian.co.uk/euro/comment/0,9236,940790,00.html
posted by CrazyJub (9 comments total)

I just have to say, even I find the Guardian a little too anti US sometimes, as this article above suggests.
posted by CrazyJub at 10:18 PM on April 21, 2003

Monbiot's analysis is just plain dumb.

You don't have to export or import doodly-squat to the US to get a dollar; all you have to do is give someone with a dollar bill something they'd rather have than a dollar bill. There's a brisk trade in dollars that doesn't involve the US.

I still don't like them much, but the US deficits are not particularly large in %GDP terms.

Even if we accepted the notion that all "The US" would need to do to buy oil is print money, the oil companies can't do that, because they're not the monolith THE U.S. If an oil company wants to buy oil, it has to get the dollars by -- guess what -- providing goods or services, or being leveraged against future goods or services.

And a falling dollar isn't a big deal. Currency strength is not virility, it's just a measure of how badly people want the currency. If the dollar falls, that makes American exports cheaper and makes imports into America more expensive. Who would this help? The big businesses that Bush is meant to care a lot about. Who would this hurt? To some extent, the consumers who Bush is meant not to care about.
posted by ROU_Xenophobe at 10:36 PM on April 21, 2003

I think it's a little more than trade deficits, using your currency as the standard trading currency has some very big advantages.
posted by CrazyJub at 10:39 PM on April 21, 2003

ROU_Xenophobe: If I understand correctly, the advantage in having your currency be the default is this:
If transactions are performed in dollars, then everyone needs to have dollars. Currencies can change in value relative to each other, so a "safe" position would be to invest a large amount of your surplus dollars in U.S. investments (such as Treasuries), to protect against currency fluctuation. This is good for at least two reasons - first, cash is injected into the U.S. through these investments. Second, the dollar is extremely liquid - if you have dollars, your conversion costs will be low (since chances are, you won't have to convert your dollars to anything else). It's really the first point that's the key, in my opinion.
posted by aquafiend at 10:56 PM on April 21, 2003

hasnt' this been discussed to death already?
posted by delmoi at 11:10 PM on April 21, 2003

Wooo! American economic disaster thwarted! Four more years! Four more years!
posted by wrench at 12:18 AM on April 22, 2003

Also hashed out here.
posted by Odi et Amo at 2:22 AM on April 22, 2003

The point is everyone needs oil, and oil is bought and sold only in dollars. There are only three ways to get dollars, when you think about it:

1) Sell goods and services in dollars (typically in US markets).

2) Take loans in dollars from US banks.

3) Trade for dollars in currency markets.

All three provide substantial but indirect benefits to the US economy. Goods and services exported to the US provide US companies with cheap resources, and provide political leverage. Loans in dollars equate to interest paid in dollars, which provides investment income for those banks to use. Trading for dollars inflates the dollar's value at the expense of your local currency, which means a dollar buys more resources.

Shifting international payments to another currency would have significant impact on the US economy-- of that I have no doubt. Would it be a killer? Would it force the US to face the fact that you can't operate forever on credit? That remains to be seen; economic effects at this scale are too large to predict or even understand.
posted by Cerebus at 6:29 AM on April 22, 2003

Cerebus I respectfully disagree that all three of the measures you listed provide substantial benefits to the US economy. First, the actual selling and buying of goods in US dollars does not lead to any currency related benefit as it is. There is some benefit in that if you can sell and buy goods in your own currency, you will have the added benefit of not incurring currency exchange fees....but these are not enough to affect a significant change in the US economy. In addition, the actual trading transaction occurring with US dollars would no in itself create any benefit or expense to the US economy. You trade for the currency that you need to buy or sell goods.

The third point that you made is only an issue if US banks were not able to issue and service loans in other currencies. If the US Dollar falls out of favor as the investment medium of choice for a significant portion of the world, than US banks will hold and service debts in what ever is the risk free currency of choice. US banks must hold US dollars to meet their depositors needs, but the money making side of a bank does not have to operate in US dollars.

Your first two points do not take into account the ability of the US Federal Reserve to undertake market activities to control the monetary supply. You only have problems regarding the first two if you cannot control the supply of US dollars in the market.

I think you are putting too much into that actual currency then the support and stability behind the currency.
posted by Odi et Amo at 7:07 AM on April 22, 2003