The story itself is hardly new, but with the US economy showing more than just a few signs of strain under the weight of trillions of dollars worth of debt in the post-bubble years, anti-dollar mutterings are not uncommon.
Dollar bashing was a long-term strategy of Saddam Hussein and more recently, Iran and Venezuela have been no strangers in calling for the ditching of the greenback. Iran has actually managed to get customers to pay in euros or yen but you won't see the price of internationally-trade oil quoted in anything other than dollars. Anyhow, there's nothing to stop a producer from switching their oil dollars into any currency they like. Iran's attempt to launch a euro-denominated oil bourse proved somewhat less successful, and disappeared without trace.
The head of the Saudi Central Bank has been quick to dismiss the story, along with a whole host of denials from other parties, including Kuwait and the UAE. Despite denials, we can assume such discussions happen at meetings around the world but at what level and how serious is the great unknown. Rebalancing the global trade imbalance -- whereby the rest of the world chips in to help America maintain its standard of living -- is probably at the heart of it, but that's what comes with being the world's reserve currency. These days, quantitative easing is clearly making all those dollar holders... well uneasy. How do you beat the guy with the printing press, let alone keep pace!
But on a practical level, is it really feasible for oil to start trading in something other than the greenback. For a start, a mish-mash of currencies won't have a name or could be used as a tradable unit -- well unless they invent a new currency called the petro, which is backed by oil in the same way money used to be backed by gold in day's gone by. Even if buyers were forced to pay in non-dollar currencies, I doubt the US-based NYMEX and ICE trading exchanges will adopt anything other than dollars as the tradeable currency.
And what about the countries themselves? Well it's probably a non-starter without the backing of Saudi Arabia, with whom Kuwait, UAE and Qatar will fall in line. For a start, several of the Gulf States peg their own currencies to the dollar and the fabulously-rich royalty in the region probably owe the US a favour or two, although the less-wealthy residents would probably not share the same viewpoint. Something big would have to happen for the House of Saud to turn away from the US. So short of a full collapse in the dollar, triggering huge financial and geopolitical turmoil, then change is unlikely anytime soon.
The US may not be the economic superstar it once was, but the greenback is still the reserve currency for the world. That's the game changer -- if the dollar were to lose its reserve currency status. But Uncle Sam is probably not quite ready to throw in the towel just yet.
