Pressure mounts to drop dollar peg

[phantom power]

DUBAI -The relentless decline of dollar over the past few months and Federal Reserve's interest rate cuts will force Gulf countries to revalue their currencies within months to stem spiralling inflation, currency analysts and experts said.

Speculation about a Gulf-wide revaluation is rising before a meeting between Saudi Arabia's advisory council, the Shura, and the finance ministry and central bank on February 17, according to Steve Barrow, currency strategist at Bear Stearns Co.

(...)

Calling the Gulf states to “loosen their ties to the dollar,”a leading analyst said nowhere are the dilemmas more acute than in the Gulf, where virtually all the oil-rich states peg their currencies to the greenback. The combination of soaring oil prices and the tumbling dollar is distorting their economies and fuelling inflation,” he said.

“The argument for linking to the greenback was to provide an anchor for the region’s economies, many of which are small, open and financially immature," the analyst said.

"In effect, the Gulf states import America’s monetary policy. The trouble is that a fixed currency makes it hard for oil exporters to adjust to swings in the price of oil. And monetary policy in the world’s largest oil-importer is not always right for those who sell the stuff."

http://www.khaleejtimes.com/DisplayArticleNew.asp?xfile=data/business/2008/February/business_February172.xml§ion=business&col=

[phantom power]

1. any thoughts about where the price of oil would stabilize against a floating dollar?

[Robert Oak]

3. increase

since the US dollar is sliding down, if they stop using the US dollar to trade oil, for the US that's probably going to increase the price further.

[phantom power]

4. Sure, but I'm wondering how much.

My own suspicion is that it could possibly be pretty damn bad. Like, $200/barrel bad.

[Robert Oak]

5. good question

There are a lot of resources on that one (Petrodollar) and a lot of theories of Iraq moving to Euros to sell oil being a reason to invade Iraq.

I think it would be pretty damn bad because I agree with the Petrodollar theorists that there would be less incentive to use the US dollar as a reserve currency, which is propping up it's value and way over-extended twin deficits (trade, budget).

[phantom power]

6. I wonder if floating the dollar against oil would be the last straw.

As far as I can tell, the only reason the dollar is still hanging by its fingernails is that the rest of the world takes a hit if the dollar (and American economy) collapses. So they continue to prop it up. But at some point, the pressure becomes irresistable, and foreign economies will have to float the dollar, and stop purchasing our debt, etc.

Something is going to break that log jam. It's just a question of what.

[Robert Oak]

7. well

consider coming over to The Economic Populist to research it out more.

We're certainly talking about the damn bursting and searching for solutions to turn it around. and yes I am officially a Democrat
but in terms of this Presidential election, well, it ain't looking too good to get real policy that will do that.

Should probably be focusing in on congressional races to get some more reps in there that are not corporate/special interest purchased or running on impractical dogma that the consequences are inverse what they claim it will cure.

i.e. Hucklebee's abolish the IRS...there is something called international corporate taxes, hmmm.....

[Dead_Parrot]

8. "Stabilize"?

What's that, then?

[phantom power]

9. Well, a sort of temporary plateau, if you will...

I knew somebody would ding me for that.

[Robert Oak]

2. Economy

This should probably be posted in the economy forum.

Note the fact that they are talking about <em>not</em> using the US dollar as the reserve currency and they are saying the Fed slashing interest rates is the reason.