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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: sea_biscuit who wrote (69880)	10/3/2007 1:18:37 AM
From: mishedlo	Read Replies (2) \| Respond to of 116555

sea biscuit ... Kuwait has to decide whether or not to hold dollars. That is the only relevant question. Here is the question explicitly: "Do I hold dollars or not?" The pricing unit of anything, be it in pounds, dollars, yen, or swiss franks is irrelevant. It is a mistake to think the pricing unit mandates someone holds that currency to buy anything. Gold is a good example. You can easily buy gold in any currency you want although the price is traditionally listed in dollars. Why is oil any different? I suggest it's not different. Neither Venezuela or Iran hold dollar reserves regardless of what oil is "priced in". Every country has to decide what currencies they will hold. Countries typically base such decisions on trade with their trading partners not on an irrelevant pricing unit. Iran and Venezuela do not trade with the US. There is no reason for them to hold dollars. Oil priced in dollars is not relevant to Venezuela or Iran. Is it relevant to anyone? For those willing to accept currency fluctuations, there is no explicit need for anyone to hold dollars. Many countries are deciding just that, in spite of things being priced in dollars. China on the other hand is very worried about this. Most likely because of the peg. For China trade is a very important reason to hold dollars. Mish