Despite Lots of Talk, Dollar Still Reigns

MATTHEW SALTMARSH | OCTOBER 2011 | SOURCE: New York Times

The dollar is here to stay, at least as far as pricing in oil markets is concerned.Certain countries — including Iran, France and Russia — have periodically floated the idea of transforming the markets by settling crude oil transactions in currencies other than the dollar.

But each time the notion is raised, it has been quickly dismissed on technical and economic grounds. And that remains the case today, more than ever.

Despite Lots of Talk, Dollar Still Reigns

“It’s a red herring,” said Leo Drollas, chief economist at the Center for Global Energy Studies in London. “The idea should be put back in its box for a while, especially with all the turmoil surrounding the euro.”

Various reasons have been cited for the calls to shift away from the dollar, which remains the world’s reserve unit.

Proponents of change suggest that there is an economic logic, as many countries have been diversifying their foreign exchange reserves out of the dollar in line with an increase in global trade flows booked in nondollar currencies.

Others argue that the decline in the dollar’s value, an on-off trend since the 1970s, justifies such an action, particularly in the light of calls from China, France and even the United Nations to examine the creation of a global reserve currency.

And Chinese leaders have been making the case increasingly vociferously that in an age of many rising powers, the dollar has an outsize importance. As the second largest economy in the world, behind the United States, and the holder of the greatest amount of currency reserves, China is interested in seeing the global economic hierarchy reordered to match the post-Cold War world more closely.

But most analysts do not see a compelling logic for oil markets — or other commodities for that matter — to ditch the dollar. “It’s just politics,” said Bahattin Buyuksahin, a senior oil market analyst at the International Energy Agency in Paris.

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