The Euro Effect Iraq Oil and threat to the dollar

February 11, 2003 1:12 AM

Is the currency that oil is denominated in the real reason for the Iraq War? "The Federal Reserve's greatest nightmare is that OPEC will switch its international transactions from a dollar standard to a euro standard. Iraq actually made this switch in Nov. 2000 (when the euro was worth around 80 cents), and has actually made off like a bandit considering the dollar's steady depreciation against the euro. (Note: the dollar declined 17% against the euro in 2002.)"
posted by thedailygrowl (35 comments total)

Interesting. This is a theory I have not heard discussed before. I don't know how credible it is, but such a scenario is the best reason I've heard yet for the USA going to war. It would also explain why Britain is backing the USA, while France and Germany are not.

Are there any economists who can a) say whether OPEC could realistically switch to the Euro, and b) if so, what would be the effect on the dollar and thus the US economy?
posted by salmacis at 2:53 AM on February 11, 2003

Interesting but lengthy article. It hadn't really occured to me the real importance of saying "We want him to disarm" (resulting in war) and "We'll accept him going into exile also". The two don't accomplish the same thing. But the administration has been public in it's goal of holding Iraq's oil fields "in trust for the Iraqi people" after the war. Reminds me of the US holding Indian land and money "in trust" for them. I'm against the war for various reasons but, strangely, while reading the dire predictions made about a Euro switch, I briefly found myself thinking that this would be a good thing in order to prevent a massive economic crisis. Thanks for the link.
posted by efalk at 3:00 AM on February 11, 2003

Are there any economists who can a) say whether OPEC could realistically switch to the Euro, and b) if so, what would be the effect on the dollar and thus the US economy?

I am not an economist, but that is the one of the reasons behind the creation of the Euro - create an international competitor that can take the dollar head on at as many levels as possible. Trust players to figure out how to take advantage of the situation. Cartels like the OPEC do often as they please. Look at Iraq, not exactly a player who looks like it can impose its rules. However, being a major producer, geostrategy works in its favor and the switch was done - at a profit.

This is what the Opec is thinking:

US remains a large importer of oil, despite being a substantial crude producer itself. However, looking at the statistics of crude oil exports, one notes that the Euro-zone is an even larger importer of oil and petroleum products than the US

[the] euro has the potential to be a viable competitor and possible alternative to the dollar in international financial and commodity markets in the medium to long term

etc.


I briefly found myself thinking that this would be a good thing in order to prevent a massive economic crisis

That must be what half the Bush administration thinks as they wake up every morning. Of course, another way to prevent the dollar-for-euro switch in this and other areas would be to actually work on getting the American economy in shape, instead of letting a few lucky bastards milk it to the point of absurd. IOW, make the dollar strong and the threat dissapears. Instead, they retort to the trifecta jokes at home and the "Saddam has to go" abroad. Lucky AND lazy bastards, I tell you.
posted by magullo at 3:29 AM on February 11, 2003

I considered posting this when I first read the complete essay here as I am fascinated by the ideas expressed, not least because, as efalk mentions, it explains many things that were previously difficult to reconcile with the aims and methods being discussed regarding Iraq. I'm glad thedailygrowl has posted this; I didn't because I came to the conclusion that I was in no position to evaluate the material and would probably make a fool of myself for having been taken by such an obvious (to economists) fake :)

The argument seems to me to be well made and is backed by extensive sources (there are links to all supporting material in the version I have linked) but I still have no idea if it is in fact as strong an argument as it appears to me. So, like salmacis, I would be interested in views from economist types who can maybe shed a bit more light on the subject. Anyway, until such time as someone points out to me the reason why it makes no sense, I'm mostly convinced. I have certainly been watching the news with yet another possible subtext in mind since reading the essay.
posted by Gamecat at 3:35 AM on February 11, 2003

You mean it is not about oil but only how oil is bought and sold? Note: OPEC has much less control over oil production world-wide than it had back some years ago. And will have even less as more and more sources are developed. It is difficult to believe that the Euro will only be of importance vis a vis the US in oil ....what of all the other items buoght and sold?
posted by Postroad at 4:11 AM on February 11, 2003

postroad: And will have even less as more and more sources are developed.

Rather fewer and fewer.
posted by talos at 4:41 AM on February 11, 2003

The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example). You'd have foreign funds stream out of the U.S. stock markets and dollar denominated assets, there'd surely be a run on the banks much like the 1930s

Good one. Can someone explain why there's this perception that US Administrations feel like the dollar's "strength" reflects directly on their manhood? I'm a long time out of college and Eco courses, but there seems to be some great leaps of faith and logic taken in this article. I undertsand the implication of what is quoted above, but I something seems out of whack in the author's progression from oil being bought in Euros to US economic collapse.

And I don't think a currency devaluation of 20-40% == Argentinia.
posted by yerfatma at 4:51 AM on February 11, 2003

but I something seems out of whack in the author's progression from oil being bought in Euros to US economic collapse

The credibility of the essay seems to rest on the sentence "The United States economy is intimately tied to the dollar's role as reserve currency". I this can be proved wrong, then the central argument goes up in smoke.
posted by magullo at 5:55 AM on February 11, 2003

It also assumes that the amount of money it takes to buy the world a round at the Petrochemical Bar represents a significant percentage of all dollars currently invested.
posted by yerfatma at 6:09 AM on February 11, 2003

1). The article is biased, it does not consider other points of view. Moreover, have look at his references, some are not trustworthy.

2.) It ignores the fact that banks worldwide were already switching to euro and they have some reserves.

3.) Iraq actually made this switch in Nov. 2000 (when the euro was worth around 80 cents), and has actually made off like a bandit considering the dollar's steady depreciation against the euro. (Note: the dollar declined 17% against the euro in 2002.)" This is 20/20 hindsight. Or, to go along with the article, Saddam planned 9/11 back in 2000!

Assume that we see another devaluation of $US. That would hurt the consumer since the imports (including oil) are more expensive. Now watch the "invisible hand" at work: US producers would become more competitive in the foreign markets as their goods become cheaper. So they will hire more workers at home and thus …

There is an aspect of economics that is not covered well in the textbooks: Trust. People trust each other when it comes to trade, doing business, supporting the fiat money, granting loans, etc. Yes, there are penalties for breaking the rules (contracts) but they do not cover all the contingencies, people still trust each other to cooperate. What happens when they do not cooperate? Bank runs, stock market crash, payments in gold, "pay me next day or I will break your legs" guarantees etc. There is a big difference between a structural collapse due to lack of trust (as back in '30s – remember Roosevelt's speech, it was about trust; Argentina) and a decrease in the value of the US dollar. I would still trust the US economy in the later case.
posted by MzB at 6:14 AM on February 11, 2003

As a Canadian I just hope that the next time the US dollar takes a dive currency traders will realize that Canada and the US are two separate entities and not dump all their Canadian $ holdings at the same time like they have been doing recently, all the while Canada's job growth and economy have far outpaced the US's. Just one of my pet peeves.
posted by Space Coyote at 6:25 AM on February 11, 2003

I think that has to do with the Can$ being pegged to the US$, we dump, you dump.

I've also heard the oil theory expressed in regards to the war on drugs. Supposedly the drug lords use dollars for exchange and pricing and partially because of the rates but also because they use so much cash and the 200 euro bill is so much more handy, they all are suddenly going to switch over and flood the market with their hoarded dollars, thus we obviously have to escalate the war on drugs.

Sure the euro does pose a slight threat to the dollar as competition, but if this were the case, why wouldn't drug lords and oil barons use pounds sterling for exchange? I think the answer has a lot to do with A) where the largest exchanges are and B) what country is the biggest consumer of both drugs and oil. If Europe suddenly gets a coke addiction or a fetish for SUV's then we can talk.
posted by Pollomacho at 6:51 AM on February 11, 2003

Assume that we see another devaluation of $US. That would hurt the consumer since the imports (including oil) are more expensive. Now watch the "invisible hand" at work: US producers would become more competitive in the foreign markets as their goods become cheaper. So they will hire more workers at home and thus …

Meaning Argentina's crisis is actually good for them because it will fortify them in the long term? With a permanently negative trade balance (i.e. you need to buy more than what you sell), the "invisible hand" can eventually be overpowered by the circumstances.

This is not to say that you do bring up some good points. But trust is a double-edged sword. Trust based on access to information is good for everyone; blind trust is generally only good for some (usually those asking for it)
posted by magullo at 6:59 AM on February 11, 2003

Every few seconds as I read this article things seemed to jump out at me that sounded not right from a classic economics view. First, I am not an economist, so there may be people far more qualified to speak to some of these points, but I will give it a go on a couple of things.

First, with regards to reserves of US dollars in central banks around the world. I can think of three requirements for banks to hold reserves of US Dollars:

First would be that historically US Dollar purchasing power is less volatile than many currencies in the world. Remember, we cannot just look at relative exchange rates of currencies, but what they can purchase. So if you are afraid of your own currency devaluing from a purchasing power standpoint, you will want to hold US Dollars.

Second, many national central banks hold large amounts of foreign reserves to assist in propping up their exchange rate. Argentina and Brazil are perfect example of countries that recently floated their currencies since it was not possible for them to defend the value with their US Dollar reserves. If you are a free market economist, or like to think like one, then you would say that having large reserves is not beneficial for a country.

The third reason, and the one that I think is most likely with regards to why a central bank would hold large amounts of foreign reserves is to ease the transaction of cross boarder trade. Any goods that are bought outside your country most often require the use of the currency of where you bought the goods from. The more difficult it is to trade your local currency to that which is needed for trade, the higher the additional cost will be for your international trading parties.

In light of the article....I think that perhaps there could be two reasons for Iraq, or any country to reduce their US Dollar holdings, first that they are not doing much business in dollars, second, that they are not confident in the stability of the US dollar and its future purchasing power. Which leads to the second major point.

The author claims as proof the revaluing of the Euro to the US dollar as being in indicator to the coming economic doom and reasons for the war in Iraq. Recall that the valuation adjustment is between the exchange rate of US Dollars and Euros, it mentions nothing of the purchasing power of the two currencies, in general however exchange rates vary for the following reasons:

1. Change in preferences for good origination(i.e. people stop buying US goods, or start buying Euro generated goods)

2. National Income Changes

3. Inflation Changes

4. Real Interest Rate Changes

5. Speculation

Reasons 2,3, and 4 do rely on overall monetary "availability", however as was previously mentioned, I do not think that the amount of cash we are talking about would be of a material level to affect these factors. Particularly as there are controls in the US Central Banks that can assist in these issues. I think if anything, there maybe some speculation in the currency markets today with regards to item 1 above and perhaps some interest rate affect and inflation. (NB: The European Central bank recently held interest rates steady while US and UK lowered them, thus increasing interest rate spread which would lead to an expected exchange rate change.)

I do not think that OPEC countries changing the format of their "petrol dollars" would affect any of the above in a significant way.

Overall I think that the article is very weak on support from an economical position.

Also I would like to know who his "astute and anonymous friend" is...perhaps he wants to remain anonymous since he would be lambasted as being wrong....for me, that alone is enough to discredit what is being said.

Thank you for your time.....sorry if I broke a MeFi thread comment length rule.
posted by Odi et Amo at 6:59 AM on February 11, 2003

the 200 euro bill is so much more handy

It's the 500 Euro bill, and if you are smuggling money it must be very handy...
posted by talos at 7:23 AM on February 11, 2003

Magullo: please reread my post, I made a distinction between a structural break down of cooperation (as in Argentina and US during ‘30s) and a shock to the system (dollar devaluation). The current macroeconomic view is that the US economy is relatively stable and that you could model a shock using impulse response functions. In the long run, the models assume (and confirm) some stationary conditions. Even if you have a time series that looks bad (as the one you linked to), it does not say the system as a whole will fail; for example, in a stable model you could have the trade deficit growing larger and larger over time.

However, these models do not assume big structural changes and in most cases they fail to predict or even model them properly. Oversimplifying, new models are estimated for the time intervals where structural shifts (for example after 9/11) are assumed.

It is possible for a shock to cause a break down of cooperation, but predicting such a thing for each shock is extreme. This is what the article linked does. It is possible? Always! It is likely? No, especially when one considers only one single cause. IMHO (subjective), we need more than a simple shock to get an economic catastrophe.

Odi et Amo: thanks for your comprehensive argument.

Back to the article: Unfortunately, neo-conservatives such as George Bush, Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and Richard Pearle fail to grasp that Newton's Law applies equally to both physics and the geo-political sphere as well: "For every action there is an equal but opposite reaction." I have a very big problem applying ad-litteram physics laws in economics.

[derail] For better criticism, please view this NYT ad where 400 economists signed a statement against Bush’s economic policy.[/derail]
posted by MzB at 8:11 AM on February 11, 2003

MzB - I think that your comments on trust related to economic peril are very interesting. I could not help but think as I read your initial comments that your concept of trust could be an offshoot of the Efficient market hypothesis that is commonly applied when view free market characteristics, particularly related to surprise that perturb systems. I think the in an economy that is exhibiting as close as possible efficient market conditions, these surprises can be reasonably expected to be damped in a fashion you describe. In non efficient markets, particularly in ones with asymmetric flows of information you will find more unpredictable response. In summary, I agree with what you are saying....just wanted to through out more economic basis for what you are saying. I apologize if I have oversimplified your point or misinterpreted.
posted by Odi et Amo at 8:28 AM on February 11, 2003

Sorry Talos, of course, the 500, not the 200 (although 200 is better than 100, no?), but that still doesn't get over the fact that you are smuggling money from the people who are buying your product, Americans. Last I checked people were still buying crack on my corner with dollars, maybe not in France, but France isn't known for its huge crack popularity, although, if the drug lords want to start switching over to the euro, maybe they will create a market for their products in Europe, hmm?
posted by Pollomacho at 9:03 AM on February 11, 2003

MzB Correct me if I am wrong, but I always thought that Argentina's decline and ultimately its structural break down of cooperation is the effect of a series of your "shocks" while the causes for the U.S. Stock Market Crash of 1929 where not. I think the U.S. is going to face - in fact is already facing- some of those shocks (i.e. unprecedented competition from the Euro).

BTW, what I am really curious to know is what do you think are the reasons behind the bellicosity towards Iraq of the current American government.
posted by magullo at 9:49 AM on February 11, 2003

I didn't read the entire article since this was not a new idea to me. While it may not be the sole reason for President Bush's call for action, I believe it helps to explain why Germany and France (the mainstays and chief beneficiaries of a stronger Euro) are so often opposed to war with Iraq.
posted by joaquim at 10:13 AM on February 11, 2003

I always thought Argentina's economic problems were a result of the Hewlett-Packard USB-compatible Argentinian Currency Printer.
posted by yerfatma at 10:33 AM on February 11, 2003

Another view on why it's about the Euro: Debts and export liscense applications. and "Carve-up of oil riches begins". If it's about oil for the US it seems just as likely it's about oil/euros for France, Russia, China and Germany.
posted by Mack Twain at 11:18 AM on February 11, 2003

Euro members:
Finland: no position on Iraq
Austria: Against action
Belgium: Against action
France: Against action
Germany: Against action
Greece: For action
Ireland: no position on Iraq
Luxembourg: Against action
Netherlands: For action
Spain: For action
Portugal: For action

So 6 nations in the Euro group are against military in Iraq, 4 are for, and 2 are currently neutral.

I don't think this has anything to do with the Euro.

First, it's better for everyone in the world, US included, to have more currency diversity - it will help global recessions to end quicker. Second, foreign use of US currency as reserves has relatively minor effects on the US economy, and Arab OPEC nations should be using the Euro already since they deal primarily to Europe (though Venezuela would be wise to continue to use the dollar for transactions).

As for Argentina, yerfatma is exactly right. If you print money every 10 years to pay off loans, it makes it damn difficult for people to trust your government to pay off *new* bailout loans. The US and Argentina are entirely incomparable economically.

This article shows an amazing lack of understanding of macroecon. A 20-40% drop in a currency's value relative to another nation is entirely different from a 20-40% rise in inflation. In fact, a drop in currency value is often good when in a recession, since it makes the home country's exports more attractive (as Japanese exports have been for the last few years).

But, hey, no blood for oil, right? How about the new chant, "No facts! No way!"
posted by Kevs at 11:25 AM on February 11, 2003

The argument presented by the linked article, that US motivation to go to war is to prevent a sudden switch of petro-dollar to petrol-euro that will drastically weaken US economic might, is simply not credible, not just for the fact that the assertion came from an anonymous friend of the writer, but also on account of presuppositions that a successful (i.e. US-friendly) regime change in Iraq will materialize, the US will maintain significant military presence in the region for as long as the dollar is under sieged (which will bring about long-term political risks & huge economic costs to US), and every OPEC state will be restrained by fear of regime change from using the euro for their oil transactions.



It also seems that the OPEC states may not have to switch to euro to reduce the dollar effect. There is talk that there is a move by “a group of Islamic countries to create a gold-backed Islamic dinar and that would be the basis of trade between those nations and of course significant amounts of trade goes through those countries in oil.”

An article (click "THE EURO VERSUS THE DOLLAR: WILL THERE BE A STRUGGLE FOR DOMINANCE [pdf]") by C. Fred Bergsten, Director of the Wash. DC-based Institute for International Economics gives an interesting look at the increasing diversification towards the euro internationally.
posted by taratan at 11:47 AM on February 11, 2003

Is the currency that oil is denominated in the real reason for the Iraq War?

Er, no. It isn't. The author probably ought to study at least a Macroeconomics 101 text.

First, Greenspan and the Fed not only are in favor of the Euro, but contributed a good deal of expertise to European bankers. This article pretty much sums up Greenspan's attitude:

To the extent that the capital flows we have observed from Europe to the United States are a critical piece of the story, the future will be determined, at least in part, by the success in Europe of matching the expected rates of return on U.S. assets. But market pressures toward portfolio diversification are clearly also going to play a major role in the future relative positions of the dollar and the euro. The world can only benefit from the competition.

Second, the base currency for transactions does not necessarily deliver "hegemony". As often as not, it delivers responsibility - and to some degree limits the freedom a particular country has to manipulate it's own monetary policy. The Euro is, indeed, relatively stronger than the USD right now - but this is because Greenspan has been lowering rates (i.e., increasing the supply of dollars) to stimulate the economy, while the EU has not. The result? "Strong euro crippling industry". In addition, all manner of other side effects happen (for instance, European imports into American markets are now more expensive relative to similar American goods, and American products imported into Europe are less expensive relative to similar European goods). The strong Euro soon even start toppling governments in the EU (for instance, Germany is under severe pressure right now).

So far as the article making a huge deal about Saddam moving to Euros, and the money he's made as a result ... well, yes, he's made some FX gains by doing so. But so has every currency trader that made a similar bet on the USD/Euro rates. Most currency traders thinks he's a complete freakin' idiot, however, because if you make FX decisions based on political reasons rather than objective market analysis, you always lose in the long run. Right now he's doing well, but a US economy that recovers more quickly than EU economies can easily mean he loses every bit as much as he made, just as quickly as he made it.

It does go to demonstrate the complete foolishness of the author however - e.g., to say "Saddam sealed his fate when he decided to switch to the euro in late 2000 (and later converted his $10 billion reserve fund at the U.N. to euros) -- at that point, another manufactured Gulf War become inevitable under Bush II." Ten billion? Ten Billion? Good grief, that's a damn rounding error in national income accounting.

The introduction of the Euro will obviously have effects on world currency markets, but any thought that it's going to replace US "hegemony" with EU "hegemony", lead to some massive devaluation of the US Dollar, or that it might serve as a reason to go to war (for goodness sake) with Iraq is just complete idiocy.
posted by MidasMulligan at 12:52 PM on February 11, 2003

Um, Kevs Austria is Neutural, has been since 1955, that makes 5 Against, 4 For, and 3 Neutural, just to clear things up.
posted by Pollomacho at 1:27 PM on February 11, 2003

Um, Luxembourg has quietly changed its stance, making it a 5 to 4 majority in favour of action...

FWIW.
posted by Sonny Jim at 2:15 PM on February 11, 2003

Thanks for the tip off SJ, that tends to shoot the whole euro argument in the foot then. Hmm, interesting, and I mean that in a non sarcastic way, I do.
posted by Pollomacho at 2:31 PM on February 11, 2003

When modeling stock market, one assumes that there are no significant changes in the social structure, i.e. people still trust the banks, fiat money, etc. The shock that caused the massive disruption in ’29 was that some speculators needed the money (cash) at the same time. Indeed, it is an endogenous shock, but it is still a shock since it cannot be predicted.

By this reasoning, any country in the world faces hundreds of shocks every day. The social structure that we have in place is robust enough to withstand 99.9% of them. Example of such mechanisms: market price, bank reserves, unemployment benefits, etc. Thus, it is normal to see a change in the value of the US dollar. The simple fact that we have these shocks does not imply a big disruption in the society.

Reasons for war: I do not have a clear idea. So I speculate that they might want to stimulate the economy (demand side) and show some victories before the coming elections.
posted by MzB at 2:43 PM on February 11, 2003

Yeah. What Kevs and MidasMulligan said.

The primary reason that the US likes for Oil Bills to be denominated in dollars is that it saves us the premium everybody else pays for currency/exchange risk. Other countries that have to exchange currencies to trade in oil get hit when the dollar is strong, so there's some additional speculative-style risk involved. I find it highly dubious that we should expect 20-40% devaluation from the switch (where do the numbers come from?)—there would be a noticeable short-term depreciation of the dollar against the euro as countries sold off reserve dollars for euros, but it is unlikely to cause any long-term problems, and the "massive" inflation that the article suggests is by no means a certainty. Notice the entire lack of economics sources on those figures in the article. Not a single real economist is cited.

Of course, the US would like to see oil sales transacted in dollars, because it's ultimately cheaper for us that way. Greenspan thinks that the Euro will supply some healthy currency competition, but we still want to win. I doubt blindly hope that the Bush administration is stupid enough to mistake a minor inconvenience for a cause for war. Then again, I could be wrong. After all, the evidence for war that Powell presented at the UN seems to have been gathered after we had already resolved to go to war...

It was also nice to see the NYT piece linked by MzB. I'll go out on a limb here and say that anything economics-related that Paul Samuelson is willing to sign I'm okay with, too...
posted by dilettanti at 8:09 PM on February 11, 2003

Other countries that have to exchange currencies to trade in oil get hit when the dollar is strong, so there's some additional speculative-style risk involved.

Even this risk, however, is getting smaller and smaller every day. Global currency markets, hedging strategies, and derivatives instruments have gotten sufficiently mature that if one doesn't have any desire to shoulder FX risk, they don't really need to.

Global currency markets (basically) have two types of players: The speculators (the currency traders who attempt to make money by guessing which way a currency will move), and hedgers, who use currency markets to guard against exactly the sort of shocks this guy is attempting to assert. Because of the speculators, and the sophistication of derivatives, the people that want a given currency primarily to transact business in some market (like oil) can effectively "sell" FX risks to speculators. What this means, of course, is that the ones doing the hedging wind up with almost no downside risk - but also have almost no potential upside gains (i.e., they wouldn't be hurt if the USD weakens against the Euro, but also wouldn't be helped if it strenghtened ... the large potential gains and losses both accrue to the speculators that carry the risk).

The guy writing this article, in other words, doesn't even have the remotest of clues what he's talking about.
posted by MidasMulligan at 10:28 PM on February 11, 2003

Pollomacho, you are thinking cocaine I'm thinking heroin, X etc. I don't think the markets are that different in size for anything other than Cocaine... But I might be wrong.

and Kevs, where did you get the idea that Greece is *for* action. The Greek government is decidedly neutral, especially since it is holding the EU rotating presidency this semester and can ill afford to take any sides at all. Plus with 90% of public opinion against the war under any circumstances it would be a very dumb move as far as internal politics are concerned if they did support the war. Indeed the ruling "Socialist" Party will take part in the anti-war rally on the 15th, despite its government's neutrality...
posted by talos at 1:48 AM on February 12, 2003

We have a pretty sizeable heroine trade in the US too, not quite the size of Europe, but large and besides, we already took over the largest heroine producing area in the world last year, remember? So I don't see Afghanistan switching over to a euro based drug trade any time soon. Wait, now I'm starting to think that maybe this theory isn't so full of holes. We DID just prevent it from happening in the heroine trade, why wouldn't we do it with oil and who knows what next, illegal arms, slavery? We could make sure that every black market in the world runs on the greenback! I wonder who will be Don Jorge's conciliari after he stirs up trouble with the five families?
posted by Pollomacho at 6:51 AM on February 12, 2003

Pollomacho - 'sizeable heroine trade'

hmmm, Marilyn Monroe, other blondes etc.

Anyhoo, all this economic flarn has not promoted any feeling of trust in this appliance of mathematics after the fact to human interaction, IMHO.
As a good friend I have says, economics is a game, easy to win if you have no emotional memory.

eg. 'The speculators (the currency traders who attempt to make money by guessing which way a currency will move), and hedgers, who use currency markets to guard against exactly the sort of shocks this guy is attempting to assert.'

On thread - if not euro-bound, then why are the old (read real) Europeans opposed to this war?
posted by asok at 5:46 PM on February 12, 2003

i kinda had a comment about this earlier..:)

there's some discussion going on in china as to whether it might be a good idea to shift some of its foreign currency reserves (predominantly in dollars at present as i understand it) and into oil futures contracts in a bid to become more established in world oil markets, as it is now a strategic consideration for them it seems. i guess it'd basically be like an implemention of a commodity reserve currency, or a so-called 'commodity buffer stock' as benjamin graham called it, to "improve the overall quality of its assets and diminish exchange-rate risks." don't know how seriously it's being considered, but interesting nonetheless, i think! that and OPEC possibly moving to euro-size :)

also a bit about reference currencies here, and alternatives!
posted by kliuless at 6:55 PM on February 12, 2003