[Starvid]

$this->bbcode_second_pass_quote('zensui', 'I')n a free market with a state that doesn't interfere at all, precious metals tend to become money. Why are some people against this?
Why a gold coin cann't be used as money? It was like this for thousands of years, this paper money is just a (failed, in the opinion of many) experiment.

[Doly]

$this->bbcode_second_pass_quote('Starvid', '
')Why would anyone like to back a currency with some metal? It's just... stuff.

With state backing, the currency is backed by power, by force, by the violence monopoly of the State.

There is nothing more reliable.

[MrBill]

The problem with returning to a gold standard are many fold. For one gold mining is a horribly polluting activity that requires copious amounts of energy and leaves behind trailing ponds full of cynanide amoung its environmental after effects. And of course no one can guarantee there will never be floods or landslides, so those poisonous lagoons are just an environmental disaster waiting to happen. That is one problem with finding enough gold to run the world's economy.

The second problem with running an economy on 'real' stuff that you can touch and feel is simply that many of you do not work in mining, or energy production or even growing food. What do you have to trade for 'real' stuff? Computer programming skills?

That is the point isn't it? You all want your money - your paycheque for your labor - to hold its value, but ten minutes after you have finished doing whatever it is you do what is left? Anything? In a service economy your labor also expires in many cases. Nothing of lasting value was created to trade for 'real' stuff.

On the other hand a fiat currency that is based on the 'real' claims to 'all the assets of the country' are a claim against goods, services, labor and any other tangible or non-tangible asset that is produced in the economy, which like silicon chips may just as valuable as gold because of their usefulness in other applications.

The problem with fiat currencies, contrary to Doly's comments, that ''nobody has started the groundwork for a designed economy that works in the way we would like it to, instead of the patchwork economy we have now that is little more than a bunch of tricks invented by banks at various times to patch past problems'' is that citizens and voters elect populist governments that will try to give them something for nothing. A free ride.

A government that ran a balanced budget and had a neutral monetary policy that was neither stimulative nor restrictive would have a strong, stable currency that could expand or contract in-line with the needs of the real economy. That is what has never been tried. Good government.

If we were to return to a pure gold standard and you could only trade your existing skills for a scarce supply of precious metals, agriculture commodities or energy then I doubt that most of you would have anything of value to trade? Wake up! You're benefiting from an economy that has expanded to include you. But you're not needed.

[Euric]

$this->bbcode_second_pass_quote('manu', '')$this->bbcode_second_pass_quote('Euric', '')$this->bbcode_second_pass_quote('zensui', 'T')he euro is another sinking boat, it just sinks slower.

We need to go back to gold as money. I don't feel happy (being forced because of lack of options) trading my work for paper money.

[CrudeAwakening]

MrBill, I'm not really following you.

What is wrong with trading services for gold, cigarettes, or any other form of commodity money?

Just because someone doesn't create something of lasting value, why shouldn't they be entitled to exchange their labour for an intermediary good (money) that holds it's value?

Or am I misinterpreting you?

[MrBill]

$this->bbcode_second_pass_quote('CrudeAwakening', 'M')rBill, I'm not really following you.

What is wrong with trading services for gold, cigarettes, or any other form of commodity money?

Just because someone doesn't create something of lasting value, why shouldn't they be entitled to exchange their labour for an intermediary good (money) that holds it's value?

Or am I misinterpreting you?

[manu]

Yes, just like the other thread where Mr. Bill and others where so confidant about whether it was important that oil was traded in dollars or not. I didnt hear another peep out of them after petrodollar's paper. So if you are saying that someone's point of view is simple, ignorant, unintelligent, ect. maybe you should think about that you dont know everything. You have a point of view like everyone else. For all anyone knows in a few years Mr. Bill will be trade-ing fruits and vegetables in the local market.

[MOCKBA]

$this->bbcode_second_pass_quote('MrBill', '
')Create a true pay as you go system. No free rides.

[MrBill]

$this->bbcode_second_pass_quote('manu', 'Y')es, just like the other thread where Mr. Bill and others where so confidant about whether it was important that oil was traded in dollars or not. I didnt hear another peep out of them after petrodollar's paper. So if you are saying that someone's point of view is simple, ignorant, unintelligent, ect. maybe you should think about that you dont know everything. You have a point of view like everyone else. For all anyone knows in a few years Mr. Bill will be trade-ing fruits and vegetables in the local market.

[manu]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('manu', 'Y')es, just like the other thread where Mr. Bill and others where so confidant about whether it was important that oil was traded in dollars or not. I didnt hear another peep out of them after petrodollar's paper. So if you are saying that someone's point of view is simple, ignorant, unintelligent, ect. maybe you should think about that you dont know everything. You have a point of view like everyone else. For all anyone knows in a few years Mr. Bill will be trade-ing fruits and vegetables in the local market.

[Revi]

I think of the different currencies like different catalogs. You might like LLBean, or you may like Eddie Bauer. If you get a gift certificate you'll spend it on stuff from that catalog. Oil priced in dollars entitled those who got dollars for oil to spend them in our catalog. Our catalog has lots of stuff, but best of all those dollars made it back here. Now the Euro catalog is popular. The place those Euros go isn't Bentonville, Arkansas, but Frankfurt or Athens.

[pogoliamo]

$this->bbcode_second_pass_quote('Euric', 'T')hat is the most ignorant idea anyone has ever suggested. Gold is as much a fiat currency as paper. It has no value on its own and depends on the value others give it.

[Euric]

$this->bbcode_second_pass_quote('MrBill', '
')First of all I have more than once proved conclusively that it does not matter whether oil is traded in US dollars or any other freely traded currency. What matters is in which currency the export receipts are re-invested. I am so sick of that particular argument that I cannot be bothered to go through it again. If you don't get it by now you never will.

[MrBill]

You're wrong Euric. Sorry. This is not a popularity contest where the majority view prevails. There are only right answers and wrong answers. It is the logic that prevails. Plus the facts.

The arguments put forward by others as to why it matters to have oil priced in US dollars are full of holes. They do not stand-up to scrutiny.

For one that oil pricing in US dollars supports the US dollar by creating extra demand. I am sorry, but that relationship should be plausibly proven by simple regression analysis. Where as in fact as oil climbed from $15 to $90 a barrel since 1998 the US dollar has lost value over the past years. There is no positive correlation. Whereas a falling US dollar against the euro has kept oil price increases as measured in euros lower.

The extra demand for US dollars does not come from its role as a transaction currency, but the size and depth of its capital markets as a place to store wealth.

The fact that a lot of international trade is conducted in US dollars stem from the fact that both historically and at the moment US GDP is much larger than any other country.

The argument that it is foreign exchange costs that dictate choice of currency is also misplaced. The $3 trillion a day FX market dwarfs the $7 billion a day oil market. Keeping in mind that actual traded oil flows are much lower due to oil consumed by producing countries; the oil products used in the search for oil; and that domestically traded or consumed oil is not traded in US dollars, but in local currency. Therefore it may be $3 trillion a day versus perhaps $5 billion per day.

Why? Because FX markets are not only efficient, but they are very low cost. It only costs 3-5 pips to trade a block order of FX. The largest state owned energy companies and government agencies can demand micro-thin bid-offer spreads from their banks. Many of them are like banks themselves. If I compare FX spreads to the cost of buying fixed income or equities there is a huge difference. The transaction costs to invest the reserves are much higher than the transaction costs in the first place. Also, the cost of US dollar devaluation is potentially much higher than the cost of FX spreads.

Also you have OPEC producers and Asian exporters that run quasi-US dollar pegs and/or sterilize their export receipts to stop their own currencies from appreciating and harming their own export competitiveness.

You are wrong that the introduction of the euro has harmed the US dollar's role as a reserve currency. Your position is not supported by the facts. The US dollar is used for about 60-65% of foreign reserve currency reserves versus approximately 25-30% for the euro. The difference is made up of other lesser currencies. That relationship has been relatively stable. And does not differ markedly from the role of the deutschmark prior to the introduction of the euro in 1999. Off the top of my head I believe it was 29% at the time of the switch over to the euro? Please correct me if I am wrong. Thanks.

Also, the relative percentages mask the fact that foreign exchange reserves have sky rocketed since the Asian currency crisis in 1997, so the absolute amount of US dollars held is much larger even if the percentage against the euro has slipped somewhat.

Can that change? Yes. Has it materially changed, yet? No.

I have always said, since day one, that a weak US dollar is the product of the US' massive current account and trade deficit as well as equally large unfunded future liabilities. It is those global imbalances, and not in which currency oil is priced, that matter for the value of the US dollar vis a vie the euro. Now that those interest rate differentials are shrinking in favor of the euro the US dollar is even weaker despite foreign trade being conducted in US dollars.

However, now a weak US dollar and a strong euro mean that more Chinese and Asian exports are landing in the eurozone than going to the USA. The problem of the global imbalances is therefore being shifted from one trade partner onto another. And the creation of sovereign wealth funds to manage those large foreign exchange reserves will only shift the investment from low yielding US government treasuries into other assets such as equities and real-estate.

Whereas all these imbalances could be avoided if these OPEC and non-OPEC producers as well as Asian exporters were to develop their own capital markets and repatriate their own export receipts into their domestic economy. So long as they choose to export both capital and goods then the global imbalances will prevail.

Actually, I am glad to be in the minority and to clearly see things how they are and not how I might wish them to be. But you are free to disagree with me. That is what makes a market. Thanks.

[Scactha]

I´m curious. How long will it take for the BRIC to develop mature capital markets? It seems that at least China is beating the timeframe us western powers took to reach out current position by multiples but that´s no suprise I guess. "We" broke the ground. But when and more interesting why will we see that happen? There must be a divider somewhere when it´s not prudent to export the wealth anymore and start looking back at home.

[Petrodollar]

MrBill stated:
$this->bbcode_second_pass_quote('', 'Y')ou are wrong that the introduction of the euro has harmed the US dollar's role as a reserve currency. Your position is not supported by the facts. The US dollar is used for about 60-65% of foreign reserve currency reserves versus approximately 25-30% for the euro. The difference is made up of other lesser currencies. That relationship has been relatively stable. And does not differ markedly from the role of the deutschmark prior to the introduction of the euro in 1999. Off the top of my head I believe it was 29% at the time of the switch over to the euro? Please correct me if I am wrong. Thanks.

[threadbear]

Yep the next meeting of OPEC on March 5, 2008, could be very telling. If they ramp up decisions to accept basket of currencies, we may see the dollar pegged to plutonium.

[Euric]

$this->bbcode_second_pass_quote('MrBill', ' ')Off the top of my head I believe it was 29% at the time of the switch over to the euro? Please correct me if I am wrong. Thanks.

[Euric]

$this->bbcode_second_pass_quote('MrBill', '
')The fact that a lot of international trade is conducted in US dollars stem from the fact that both historically and at the moment US GDP is much larger than any other country.

[Euric]

$this->bbcode_second_pass_quote('threadbear', 'Y')ep the next meeting of OPEC on March 5, 2008, could be very telling. If they ramp up decisions to accept basket of currencies, we may see the dollar pegged to plutonium.