Another step in dollar crash? Gulf moves toward own petro-currency

[cyu]

Brings up the question of how money is defined and why it's used or stored. I'd say the sooner the dollar crashes (along with any currency the rich hold a lot of), the better.

Excerpts from http://www.telegraph.co.uk/finance/economics/6819136/Gulf-petro-powers-to-launch-currency-in-latest-threat-to-dollar-hegemony.html

The Gulf monetary union pact has come into effect

The move will give ...oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Between them they amount to ... some 40pc of the world’s proven oil reserves

Saudi Arabia, Kuwait, Bahrain, and Qatar are to launch the first phase next year, creating a Gulf Monetary Council that will evolve quickly into a full-fledged central bank.

The Emirates are staying out for now... They are expected join later, along with Oman.

“The US dollar has failed. We need to delink,” said Nahed Taher, chief executive of Bahrain’s Gulf One Investment Bank.

The project is inspired by Europe’s monetary union, seen as a huge success in the Arab world.

The Sunni Gulf states are deeply concerned about the great power ambitions of Shiite Iran

They nevertheless repeated on Tuesday that “any military action against Iran” by Western powers would be unacceptable.

[Comrade Wolfie's Very Nearly Banned Adventures]

Such a currency would be tied to oil prices, and will therefore be unstable, with oil prices only going to go up for now, they'll have problems with increasing price of everything, when the Gulf runs out of Oil the currency will crash.

Silly Gulf states.

[cyu]

Such a currency would be tied to oil prices, and will therefore be unstable


Well, what is stable anyway? :lol: Currency markets also fluctuate. If it were tied to something like the consumer price index or S&P 500, it might have more stability.



with oil prices only going to go up for now, they'll have problems with increasing price of everything


Actually, if the value of oil goes up, then the value of any money backed by oil would also go up, so the price of everything else relative to that money would actually be lower.



when the Gulf runs out of Oil the currency will crash.



Depends how the money is backed. For example, if the money were backed by oil wells, then it indeed will crash if the oil wells run dry and become useless. If the money were backed by actual oil, then it won't crash. It would simply mean that when they stop producing oil, they won't be able to issue any more of their money. Eventually they may run out of the currency altogether and have to look for other ways to back their money (assuming they want to back it with something and do not like the arbitrary volatility of fiat money).

[swirling_vortex]

Actually, if the value of oil goes up, then the value of any money backed by oil would also go up, so the price of everything else relative to that money would actually be lower.
But it's still backed by a finite resource. If we get a repeat of the popped oil bubble and oil goes down to $37 a barrel, then prices will go up by a huge amount. It's no better than going to a gold standard, which we know had its share of problems.

I'd say a better choice for them is to use a basket of currencies or if necessary, a combination of commodities.

[cyu]

I'd say a better choice for them is to use a basket of currencies or if necessary, a combination of commodities.

I'd say a basket of commodities is far better than a basket of currencies, since currencies have no intrinsic value, while real commodities do - not to mention the fact that wealthy capitalists have already accumlated large amounts of existing currencies, as opposed to commodities which are produced by people who actually work for a living. Excerpt from http://www.revleft.com/vb/why-does-take-t105430/index.html

Say at the end of a season, a farmer finds that he has harvested 500 bushels of grain (or maybe a group of oil workers find that they have 500 barrels of oil). Then the farmer issues one paper note for each bushel (or the oil workers issue one paper note for each barrel), and then takes that note to spend in the local economy.

As long as the other members of the community know they can redeem the paper note for a bushel of wheat or barrel of oil at any time, then the paper note has value, and can be used as currency. When someone finally redeems the paper note for the grain / oil, then the note is destroyed.

If you feel paper backed only by barrels of oil or bushels of grain is not stable enough, then it's not hard to back it with a more diversified basket of goods. It would be similar to investing in various index funds - some baskets of goods may try to mimic the consumer price index - other baskets may be more focused on the energy sector or the construction materials sector.

[Sleeper]

First of all, there is a reason that, while many countries hold some gold as a currency support, that no country actually uses the Gold Standard anymore. The reason for that is that you are allowing a commodity to dictate the value of your currency.

In the U.S., for example, the value of our currency as compared to others is simply based upon confidence as well as the sum of the products/services/commodities...everything believed to be in the U.S.

On the other hand, all currencies are inherently worthless, but so was gold. Think about this from an Armageddon sort of scenario, if the whole financial structure of the entire world came crashing down, currency would be absolutely worthless. While we're all wandering around looking for a place that we can maybe grow some food, I'm not going to trade you a bottle of filtered water for $10,000 cash or 3 Troy Ounces of gold or anything of that nature because I can't eat or drink money or gold. If you offer me a couple of tomatoes, though, you've got a deal.

The long and short of it is that all currency is an abstraction and currency only exists (as gold and silver were once used) because it is more efficient to have something with a pre-determined and agreed upon value than to operate under the barter system. That way you can trade for anything, and you can trade anything that you already have.

That's all that a financial transaction is. I trade you this piece of paper for a blanket, you then trade the piece of paper for a dinner, then the piece of paper could get traded for a tank of gas. There's nothing different from that except the guy with a blanket having to find someone that will take dinner for the blanket, and then the dinner guy having to find someone that will take the blanket that he traded the dinner for in exchange for a tank of gas.

The money simply makes it efficient.

The point is that when everything is reduced to base needs, money is no longer necessary, nor necessarily efficient. It cannot be agreed upon without some sort of mass communication.