Paying for crude oil in various currencies. What's the big deal?

[ExtraSlow]

Not sure if this counts as a micro-thread or what. Wanted to extract this discussion from the other threads because I'll be honest I need to learn more about this.

Internationally, payment for crude oil are done in US dollars (USD). Been that way for a long time. This helps the USA, apparently.

Large importing and exporting countries are trialing payments in other currencies like Chinese Yuan, Russian Rubles and others. That "threatens" the USA and other "western" countries apparently.

What's the big deal? Who stands to gain and lose here?

[killramos]

FX is defined by relative of demand of your currency versus other currencies.

If a country has to buy oil in yuan, they need yuan to do that. So net net demand for yuan goes up, in this case at the expense of USD.

Intrinsic value of the commodity doesn’t change, just the paper it’s benchmarked against.

Who stands to gain or lose? Well I guess it depends who stands to gain or lose from a a particular currency being worth relatively more or less than another. That’s a more complicated question with lots of divergence in the answer ( think back to the years when CAD was good and people in Ontario bitched about it) .

So I generally revert to a “who cares” stance in these situations.

[davidI]

killramos nailed the basic reasons but to expand on it, having the commodity trade currency in theory stabilizes the currency since so many companies/countries need to hold and trade USD for necessary commodity imports and commodity supply/demand should be relatively stable on a global basis. excepting the occasional supply shocks.

That in turn allows the US to sell a lot of treasuries/debt and run its massive deficits/fund its military (which has indirectly been used to ensure the USD continues to be the global trade currency).

If countries didn't need USD for trade, the value of the USD would fall greatly and the inflation hitting the US economy (which is very much import/consumer driven) would probably cause a global financial crisis / recession worse than that of 2008.

On the flip-side, it could help a lot of Emerging Economies who have sold a lot of US denominated debt (due to its relative stability) since it would then be easier to pay off that debt in their own currencies, though their own currencies would likely suffer on a relative basis due to their need to export to the US (which trade also occurs in USD).

[ThePenIsMightier]

My micro education on the subject makes me think that the more widely used a currency is, the more stable it is and that's a highly desirable feature of a currency.
The added bonus is it adds stability to your currency without any influence from whatever is going on in your own country's economy. So, it can help balance out issues you may be having with some genocide or some crazy inflation caused by a silly old man.

[ZenOps]

Its a tarp!

Realistically, many nations are in debt up to their eyeballs owing US dollars. If the terms are so bad that you are paying 6%+ per year, its very possible that you will only ever make the interest payment and never even chip away at the amount owed. Basically a credit card but usually slightly lower rate.

If you can get a sucker that will freeze to death without, and is in debt only paying the interest - in about 10 to 12 years, you will have made the entire amount back - plus still have them on the hook to pay the entire amount owed. Perpetual debt bondage. Even US students don't understand this concept.

And other reasons. Putin can just as easily print rubles, as put them into a big pile and burn them - as can any other nation. The key is to get others onto your system of payment. If a bread baker consortium got together and required payment in nickels (the commodity form of the Canadian and US dollar for the last 54 years) then look out USA, no more bread for you.

But in general: You can't mess with peoples livelihoods if you don't have them on your money.

[killramos]

I feel like there are a lot of reasons other than volatility/stability that keep people from avoiding hoarding rubies / yuan.

[Yolobimmer]

This quote is hidden because you are ignoring this member. Show Quote

Not sure if this counts as a micro-thread or what. Wanted to extract this discussion from the other threads because I'll be honest I need to learn more about this.

Internationally, payment for crude oil are done in US dollars (USD). Been that way for a long time. This helps the USA, apparently.

Large importing and exporting countries are trialing payments in other currencies like Chinese Yuan, Russian Rubles and others. That "threatens" the USA and other "western" countries apparently.

What's the big deal? Who stands to gain and lose here?

From what I have read, the Petro dollar is the only reason the US can, unlike any other country, print infinite money and not suffer deflation.

So, end of Petro dollar = end of the American free ride party??

[Xtrema]

This quote is hidden because you are ignoring this member. Show Quote

What's the big deal? Who stands to gain and lose here?

In the case of ruble, it's about not falling into hyperinflation. We have seen that in many countries where their currency become undesirable and people suffer on hyperinflation.

China is feeling the heat last couple of years as many resources are traded in USD and had to try to limit reserve outflow. That's why they didn't bother with Pfizer/Moderna vaccine purchases.

You gain soft power to be the dominant reserve currency.

[davidI]

This quote is hidden because you are ignoring this member. Show Quote

China is feeling the heat last couple of years as many resources are traded in USD and had to try to limit reserve outflow. That's why they didn't bother with Pfizer/Moderna vaccine purchases.

I'd disagree with this. If anything, China is probably holding more USD than they'd like.

China is more heavily invested in the US than the US in China. A Rhodium Group report estimated that by the end of 2020 US residents had claims on about 1.2 trn USD and Chinese residents on about 2.12 trn USD worth of debt and equity securities. Some 1 trn USD of Chinese portfolio claims on the US are Chinese government holdings of US treasuries. In addition, many Chinese companies have listed their stock on US exchanges. In 2020, 217 Chinese firms with a total market capitalization of 2.2 trn USD were listed on the NYSE, the tech companies Alibaba and Tencent included. Chinese firms have different objectives when listing there, though most commonly to meet USD financing needs and to secure higher stock-market valuations.
Foreign direct investment (FDI) is also high. In this case, the US has invested more in China in the past 30 years than China in the US. There are many reasons for this – for example, China’s capital controls that deter citizens from buying assets abroad and US investment screening. The US Congressional Research Service puts cumulative FDI since 1990 at 258 bn USD from US and 152 bn from China.

https://merics.org/en/opinion/us-chi...y-flows-dollar

The US sends a lot of USD to China by buying/importing Chinese goods. China uses some of that to buy commodities and other imports but the excess is spent buying US treasuries/debt/equities. If anything, they'd probably rather have less USD to reduce that "soft power" the US has over them but at the same time, having the ability to flood the market with US treasuries/equities/dollars is a reciprocal economic threat.

[Buster]

When you hold the reserve currency, your economy can capture a small (or large) spread on every transaction.

In the case of the US, that accumulated spread and related benefits might be worth up to a trillion a year or so. It depends on how you calculate it. That's about the us military budget give or take a few hundred billion.

Reserve currencies aren't just enforced by military power, they are a combination of factors. Size of the economy isn't the only one. The relative trustworthiness of the custodian (gov't and citizenry) of that currency is also a factor. This is ultimately why the fundamental flaws in the CCP model will be a limiting factor for them vis-a-vis currency. You might be able to buy oil in yuan, but if the shit really hit the fan, do you want to hold a Chinese currency, backed by a party that basically acts like the mafia? Or do you want to hold a currency that is backed by the taxpayer of the united states, despite all of its flaws.

[suntan]

This quote is hidden because you are ignoring this member. Show Quote

I'd disagree with this. If anything, China is probably holding more USD than they'd like.



https://merics.org/en/opinion/us-chi...y-flows-dollar

The US sends a lot of USD to China by buying/importing Chinese goods. China uses some of that to buy commodities and other imports but the excess is spent buying US treasuries/debt/equities. If anything, they'd probably rather have less USD to reduce that "soft power" the US has over them but at the same time, having the ability to flood the market with US treasuries/equities/dollars is a reciprocal economic threat.

Xtrema has no understanding of currencies other than spending money.

I think it’s hilarious that he thinks buying vaccines would affect the yuan’s value.

[Buster]

This quote is hidden because you are ignoring this member. Show Quote

Xtrema has no understanding

ftfy