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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (69872)	10/3/2007 2:37:36 AM
From: elmatador	Read Replies (3) of 116555

The reason most international trade is USD denominated has nothing to do with the easiness or speed of conversion. It is because traders needed a currency that was solid enough (solid as for non-volatile) to price the goods they were trading. The USD came in handy -post WW II- because it was the most solid economy in the world and the mean of transaction became the USD. Now with the USD becoming volatile, it is not anymore the best mean of transaction. That because if my goods, are priced in USD and the USD is going down, my goods are going down too! If my wealth is oil, oil is priced in USD, the whole oil reserve doesn't worth that much. Screw the USD lets price my oil reserves and exports in a non -volatile currency Let’s say Kuwait exports USD priced oil and imports only top class Mercedes-Benz cars. First year, Kuwait sells 1 million barrels at average prices of US$75/barrel US$75million. The Sheiks convert that oil revenue into Euros and import 500 Mercedes at US$150.000 a piece Following year they do the same again: 1 million barrels at average prices of 80/barrel US$80million. The Sheiks import 444 Mercedes at US$180.000 a piece. The sheiks reason: our oil is sold for a higher price and even though we're 56 cars short!!! The Sheiks decide to sell their oil quoted in the currency that they buy their Mercedes. Thus making sure that they don't have to sell more oil to buy the same amount of Mercedes. The purchaser of the Kuwaiti oil exports tobacco for USD and takes the hit of the USD currency going down, since he's paying the Kuwaiti sheiks in Euros. Since the purchaser make the same calculation the Sheiks did, he ends up demanding Euros for his tobacco from the importers to pay Kuwait in Euros for the oil they import.

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