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why is oil traded in dollars only

The has sometimes been regarded as a petrocurrency as a result of exports. The was once regarded as a petrocurrency due to its large quantities of natural gas and exports. The Dutch Guilder strengthened greatly in the 1970s, after
began a series of price hikes throughout the decade that consequently increased the value of all oil producing nations' currencies. However, as a result of the appreciation of the Guilder, industrial manufacturing and services in the Netherlands during the 1970s and into the 1980s were crowded out of the larger national economy, and the country became increasingly non-competitive on world markets due to the high cost of Dutch industrial and service exports. This phenomenon is often referred to in economics literature as. The is increasingly viewed as a petrocurrency in the 21st Century. [ Generally speaking, as the price of oil rises, oil-related export revenues rise for an oil exporting nation, and thus constitute a larger monetary component of exports. Thus it has been for Canada. As their tar sands oil deposits have been increasingly exploited and sold on the international market, movements of the Canadian dollar have become increasingly correlated with the price of oil.

For example, the exchange rate of Canadian dollars for (99% of Japan's oil is imported) is 85% correlated with crude prices. As long as oil exports remain a strong component of Canadas exports, oil prices will influence the value of the Canadian dollar. If the share of oil and gas exports increases further, the link between oil prices and the exchange rate may become even stronger. China, Russia, Japan and several of the most powerful Gulf States are actively plotting to end the decades-old practice of buying and selling oil in dollars, the Independent claimed today. The newspaper If executed, the move would be a significant blow to the dollar's position as the premier world currency and would potentially threaten America's position as the world's leading economy. According to the Independent, gold could be used as a temporary replacement for the dollar while the new currency basket was implemented. "Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars," it claimed. "Chinese financial sources believe President Barack Obama is too busy fixing the to concentrate on the extraordinary implications of the transition from the dollar in nine years' time.

The current deadline for the currency transition is 2018," added. The dollar fell by around 0. 4% against a basket of other currencies following the report. This pushed gold to a new all-time high of $1,035 per ounce. The report was swiftly denied by several of the world's biggest oil producers. Muhammad al-Jasser, head of the Saudi Arabian central bank, claimed it was "absolutely incorrect", while Russian finance minister Dmitry Pankin and a Kuwaiti oil minister both denied discussing a move away from the dollar. A source within the United Arab Emirates central bank also told Reuters that it would be sticking with the greenback.

A flawed system? But analysts believe that the dollar's long-term future as the currency for oil trading is indeed in doubt. "China, Russia and many Middle East countries already have large dollar reserves. They want to stop them getting higher, and may even want to start diversifying them into other currencies," pointed out David Hart, oil and gas analyst at investment bank Hanson Westhouse. For years, economists have speculated about how long oil would continue to be traded in dollars. ; oil importers are forced to buy dollars to pay for their fuel, while exporters are left with billions of dollars which they often hold in reserve or reinvest in the US economy. The result, they say, is that the dollar's position as the global reserve currency is reinforced. Thus, the US economy is supported as any devaluation would cause damage across the world. Most of China's $2tn (бе1. 24tn) of foreign currency reserves are in dollars, for example.

Hart said that it is inevitable that the dollar's dominance over the oil market will be broken eventually, possibly sooner than 2018. He believes the transition would happen slowly, rather than a sudden switch. "Let's face it, bilateral trade between China and these other countries is growing, so you can see why there is interest in matching up the currencies," said Hart. "If China and Russia are trading oil, why would they want to do that solely in dollars? " Hart also pointed out that America would probably then be forced to raise interest rates to make its US Treasury bonds more appealing to investors. David Buik, veteran City commentator, argued that moving oil trading away from the dollar would be "radical by any standards". But, he said: "Let's be candid, it's not going to happen. Saudi Arabia is very dependent on the US for trade oil, defence and there is no way Saudi will stab the US in the back by pulling support away. " In 2000, Iraq broke away from the dollar's dominance and.

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