Can anyone explain why Iran's threat to sell its oil for Euros

[joemurphy]

will be bad for the U.S. economy? I've heard this a lot, but I'm not enough of an economist to understand why this is would happen.

[lovuian]

1. The only thing I have heard is that the Dollar is a currency

which has been the world currency for over 20 years... the Euro has been around for about 5 ... If oil is put in Euro's it will rise in price...

and America as the #1 currency takes its last gasping breaths...

Its bad for the US in prestige and costly!!!

[FreedomAngel82]

4. Won't it mean

we'll have to pay just a little bit more? Isn't it like how when you for example buy a book you see a price for the US and Canada and the US prices is cheaper than the Canadian price here in our country? Kinda like that? :shrug:

[Sydnie]

9. Yes, but it's more than that

It makes the dollar less than desireable as an investment. Think of all the money that has been lent to us by other countries? (the up and coming tax cuts are said to be based on money that we are borrowing to finance them, for example) If that cash flow dries up, and say, they begin to dump their debt, the dollar won't be worth the paper it is printed on. We will have two choices, inflate the dollar or deflate the dollar. Neither one is god for the average worker or our stock market.

Dollars are the standard currency in the world, you can spent them anywhere ... this week. It might not be that way if oil begins trading in any measurable amount in Euros.

http://www.energybulletin.net/12125.html Read this article and you will have a better grasp on the impact on the dollar and our economy in general.

[Telly Savalas]

22. But the currency market traders are already aware of the situation

with the bourse, hence to a degree it's already being taken into account in exchange rates. Value in a currency doesn't just lie in what I can do with it today, but also in what I can do with it in the future. So if the Euro is to become more powerful and versatile this spring when compared to the USD, it's value has already gone up.

Markets may not be perfect, but they'll catch something like this. The dollar will probably continue its longterm downward trend, but I'd be suprised to see a drastic drop when the bourse opens.

[unblock]

2. it will simply cause many countries, traders, central banks, etc.

to sell dollars and buy euros so that they have reserves to trade oil at any time.

this makes dollars less valuable, and therefore all other currencies, euros especially, more expensive to us.
and so, imports become more expensive, causing inflation here, although our exports become cheaper abroad. so this is bad for consumers but good for manufacturing. too bad we import consumers and have offshored so much of out manufacturing.

[BuyingThyme]

3. I'm certainly not an economist, but the less something is used,

the less value it has.

The dollar would theoretically be devalued and we'd have to pay more dollars for plastic dinosaurs and high-end electronics.

[punpirate]

5. Explanation here...

... http://www.energybulletin.net/7707.html

The point here is not that Iran is selling its oil in Euros--it's that it intends to open a market trading in world oil in Euros. Therefore, it would not just be selling its own oil, but trading in other countries' oil on the Euro, as well. That expands the impact trading oil in Euros would have on the dollar.

Cheers.



edit syntax.

[izzie]

18. I am sure Saddam going over to Euro's had something to do with

War

[punpirate]

19. Many of those that understand the principle of reserve currency...

... certainly think the same way....

[Godai Kyoko]

6. It's not a threat, its good business sense

Sinnce the introduction of the Euro, thet price has been in a steady gradual rise agaisnt the dollar. It started out at about $1.03 cents us for a Euro, and now it is $1.23. They set the prices every three months or so at a meeting in Vienna in Dollars. Iran dosn't sell any oil to the US, leagally. Mostly the Japanese and the Eurpeans buy it. Iran and the US don't have much legal trade. There is no sense setting a price in a declining currency that you don't use. Priining the oil in dollars is a waste of time.

The thing is, the oil states have lots of dollars. If they suddenly decided to get out of dollars and into euros in a big way, they would have to sell their dollars into a decllining market, so they wold take a big hit doing it. Right now they get paid in dollars, and they have huge investments in dollars. If they hated us enough to take the financilal hit (And I think maybe they do hate us that much, ) the sudden conversion of dollars into euroos might reduce the value of the dollar by anywhere from 10-55%, depending on who you talk too.

Someone told me, but he was a bit of a wingnut, that 75% of all dollars are held overseas, and half of those are held by the Arabs. You want to live in an economy where all that comes back at once?

[applegrove]

11. If Bush wants to end the history of the US dollar as fiat of the world -

all he has to do is drop the bomb. That will end it. Fiat money has to have something behind it.. and the mighty & free USA was what sold it for so long.

I don't think the euro bourse is a great idea. I don't want to see a massive crash. But have not the USA been asking (albeit too politely) for the Chinese to upvalue their dollar? So that American workers who remain working in the USA would be a little bit more competative (lower dollar improves trade imbalance and perhaps unemployment over the long term). Which is not good for the elites if they are used to making profits without the American worker. But don't worry about them - they likely are already in Euros. And gold.

It may be a strategy of the Chinese - who are quickly industrializing and turning peasants into workers (and thus more productive, more cash in their hands, more choices...even if they are working in Chinese factories .. it is a better life than on a peasant farm as most Western workers agreed in the late 1800s & early 1900s). It may be that this intentional low Chinese currency is so that more and more and more chinese get into the factories. And they have half a billion more peasants to go. So - it could be that Chinese will do whatever it takes to keep their currency low - and that could mean holding onto more US dollars than we think they would under a bourse.

Don't know.

[Godai Kyoko]

12. Remember what your mom told you about doing stupid things

Because other people where doing the same stupid thing? Sometimes in Economics, you are obliged to.

The Dollar is priced depending on what people are willing to pay for it. Over the last six, seven years, that has been less and less. There is now an alternitive. A bit more stable, a bit less prone to inflation, even a bit better looking. (George, Tom, Abe, Al, Andy, Sam & Ben mey have been GREAT leaders in their time, but there is not cute factor to them)

If you are the first out the door, like the Iranians seem to be doing here, you will probalby do quite well. but if every one tries to leave at once, they all get hurt. Of course, it's even worse if you are the last out of thet gate and into the new standard.

If the Iranians pull this off, times will get hard.

[applegrove]

14. I truly believe the Iranians don't want the bourse, the bomb. They just

want the embargo on airplane parts to stop - so their planes will stop falling out of the skies. And they want the USA to stop supporting the millions of secular Iranians who want change. They want to be accepted into the world community and left at home to bully and control their people - and to sit on all those billions and remake the middle east in their image.

In other words - if you let Iran have its cake and eat it too - all these issues are solved.

Seriously - there is still a jewish community in Iran. The only place in the middle east where there still is one I think (outside of Israel). So this overt anti-semitism is for show. And to rattle cages. Covertly - I'm sure they sponsor their share of terrorism outside Iran.

I think too the Iranians are frustrated the Shiites in Iraq want to keep their oil themselves (Better to share with 7 million Sunnis & Kurds than with 70 Million Iranians). I'm sure they would want to play a 'big role' in Southern Iraq as part of giving up the bourse/bomb.

And as Saudi Arabia demonstrates - it is pretty hard to stop such a wealthy elite as Iran would be if it was given the technology it needs. And the damage they do when they fund radical islam and terrorism all over the place is awful.

I'd be interested to in finding out exactly how the oil fields in Iran or associated with the oil fields in Iraq. Are they some one the same? Hell - you can barely get two kids to share a soda with separate straws - without fighting. I wonder about that.

[htuttle]

7. It has to do with the notion of a 'key currency'

A Key Currency is a currency that possesses such widespread value that countries will use it to trade with other countries, even if it's not the native currency of either. For example, if China wants to buy oil from Saudi Arabia, the price and the payment for the oil will be denoted in US dollars, rather than either Riyals or Yuan. This causes China to want to hold a large reserve of US dollars, so it can easily buy oil. One way it obtains US dollars is by purchasing US treasury instruments (T-Bills, etc...), thereby lending us money.

If the US dollar is losing value and the Euro isn't (as much), and if China can buy what it needs with Euros instead of US dollars, it will tend to buy less US dollars, since it can purchase things (such as oil) with Euros and not lose money by holding onto dollars. This ultimately leads it to buying less US treasury investments, and lending us less money.

So, in the end, the government has less money to spend, because we can't sell as many US treasury instruments.

[Deja Q]

10. And China can still thank the US for offshoring our very infrastructure...

to them.

Makes me feel warm and patriotic all over. Doesn't it make you feel warm and patriotic?

[Sydnie]

8. Here's a great article that helps explain it clearly

http://www.energybulletin.net/12125.html

[EC]

13. Euros are worth about twice as much as a dollar now... n/t

[Godai Kyoko]

15. Actaully, the price is $1.23 to the euro

And what is this n/t thing anyway?

23% is a pretty big rise. Considerthg the dollar isn't having reall problems . some currencies sink real quickly when the government does something outragously stupid. That hasn't really happened here. But over time, the Euro has proved reliable and strong,so they are going to want to use it.

[Toucano]

21. n/t is "no text"

It means you don't have to click on the message because there's nothing more there.

Saves low bandwidth users time.

[stevietheman]

16. A good object lesson: Once the US currency is deflated, we will all learn

how powerful and productive the *real* US economy is. And I do believe that some serious chickens will come home to roost, especially with regards to domestic politics.

[izzie]

17. Because we get a cut when they deal in dollars

If I owned the bank in York County Maine and every business actions, say for food, had to pass through my bank I would not want to lose it.

[1932]

20. It will cause the dollar to drop in value.

It will also make it harder for American companies to budget their oil purchases. If you can't predict the differential between the dollar and the euro accurately, you won't know what you need to pay for oil, on top of the problem of being able to predict the fluctuating prices of oil.

It's worth noting that there are so many US dollars outside of the US -- so many countries use dollars within their own economies -- that (1) part of the value of the dollar is outside the control of US political process, and (2) a decline in the dollar would hurt those economies too.