posted on Nov, 14 2005 @ 02:52 PM
Oil in Euros versus US$.
I think it would make much less of a difference than people believe.
The Euro/US$ currency pair is extremely heavily traded and is the most liquid financial transaction in the world.
If you have capital, you could as a retail trader open an account at Interactive Brokers
and probably put on 20-50 million euro/dollar trades with a few clicks. They typically show "size" of 2-5 million on each side (bids and asks),
but they are refilled
very quickly so real depth is larger still.
If you are bigger, and have accounts at major banks, you can do a billion with a phone call and half an hour.
Seriously---if an exchange prices oil in euros, then somebody could, and certainly would, extremely easily come up with a synthetic instrument which
includes the crude (in euros) oil future combined with a paired dollar/euro forward/future. Also, the US$ denominated oil markets, in New York and
London, will still be there, and there will be arbitrage between them.
(A forward is a currency transaction which clears at a future date, instead of now).
There are lots of things to worry about with oil. The currency it is priced in is not relevant as long as it is highly liquid and universally
available. Both dollars and euros work here, they are nearly interchangable.
Consumers whose fixed prices are in euros (e.g. european oil refiners/consumers) would prefer euros. Those whose fixed prices more closely follow
the dollar would prefer the dollar. So far Saudi Arabia fixes its currency to the US$, so they prefer dollars.
The other argument that pricing oil here and there will change the overall currency of reserves that people hold doesn't seem to be major either.
Private institutions choose currencies to hold based primarily interest rates (who pays more), and this is the primary determination of currency
trends. Central banks have other, political reasons and they are obscure, but for the most part the current policies support the dollar.
Interest rates will have more to do with the dollar than the currency oil is priced in, assuming it doesn't get priced in Elbonian goatshoes.