Will Oil Be Priced In Currencies Other Than the Dollar?
Julian D.W. Phillips, October 20th, 2009
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This is a snippet from a recent issue of the Gold Forecaster with Subscriber-only parts excluded.
Market Alert
We sent you this Alert on the 6th October, based on a report from a leading British newspaper, the
"Independent": - Further to our Alert of the 20th August 2009 we have just received newspaper news [we need to hear this from the States involved first before it is accepted] that we have been forecasting for some years:
"China, Russia, Japan & France are working with oil producers in the Middle East to permit currencies other than the U.S. $ to be used to pay for oil. This basket of currencies will include the Japanese Yen, the Chinese Yuan, and the €. It is reported in leading U.K. newspapers that this payment may be in a ‘new' currency that is made up of these currencies. It is also reported that a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar would form part of this ‘basket' While we wait for confirmation from the countries involved, the news is in the market place and affecting gold strongly now. The most likely candidate for the ‘new' money is the old Special Drawing Right of the International Monetary Fund. With the Chinese Yuan heading for one of the component parts of the Special Drawing Right in its next review by the I.M.F., the move would also incorporate the U.S. $, but break the link between oil and the $ a feature of the monetary world that has persisted for around 40 years now."
Russia and Saudi Arabia have denied this news already and it is likely that if there is any truth to the story it will not be publicized this way. However, it remains expected by the market eventually and because of this the gold price is moving through overhead resistance! It is as if to say we expect it, so it is time to discount it now!
Once proved true and if true now, the era of uncertainty and monetary instability will be exacerbated by this break, taking the $'s prime support away from it and exposing it to the criteria that measures all other global currencies. This accounting will be bad for the $ and very, very positive for gold!
True or False?
The weight of China's growing power demands that the Yuan come onto the world monetary stage. The weight of $ reserves [$2 trillion+] demands that the $ retain its buying power while being slowly eased to one side. The weight of China's economic power [which still has a huge way to grow] demands that it issue the Yuan internationally and allow exchange rate forces to impact upon its exchange rate value. With its Balance of Payments strength, the Yuan should rise, but if the Yuan were issued freely abroad, the market would not let it appreciate so much. So why are they concerned about the $ oil price?
It is rapidly being accepted that the future points to the waning economic power of the U.S. and the rising economic power of the East. For over 40 years the oil price has been made in the U.S. $ almost exclusively. With the U.S. sitting with major economic problems and yet providing the globe with its reserve currency the world is realizing that the global reserve currency should be independent of any single currency, particularly under one nation's exclusive influence. But it is also true that any transition must be done slowly to allow the ‘departing' currency to retain its buying power on the way down. This is the dilemma facing the world.
With the world running on oil the world must run on the $ so long as it is the sole price of oil.
If there is to be an eventual new basket of currencies [whether under the umbrella of the I.M.F. as an S.D.R. or not] as the ‘new' global reserve currency, a lessening dependence on the $ has to follow. Likewise, trade between two nations outside of the U.S.A. should be permitted in the currencies of the two countries concerned or in the ‘new' global currency and not rely on the $. This should include oil too.
The world cannot use the $ as the only oil currency if oil producers are to receive a well priced amount for a barrel of oil, if that currency is declining steadily. The international power that the currency of oil brings is enormous! Should that power lie with a nation who is experiencing monetary problems, alone? What is certain is that further global monetary changes must come. The story from the Independent whether true or false, is saying what we are all saying!
The longer the changes take, the greater the future currency uncertainty and greater international frictions will be on that road.
