The dollar falls and oil prices go up. So the two must be related, right?
Stephen Gordon has updated his graph of the price of oil measured in four separate currencies, noting that the price for oil-exporting Canada has gone up even more this month than for the oil-importing United States. Blaming the rising price of oil on the falling value of the dollar requires quite a leap of imagination.
Not that the facts should get in the way of more blustering from Iranian President Mahmoud Ahmadinejad:
They get our oil and give us a worthless piece of paper….Oil is priced in US dollars on the world market, and the currency’s depreciation has concerned oil producers because it has contributed to rising crude prices and has eroded the value of their dollar reserves.
And Bloomberg quotes Ahmadinejad as asserting:
The dollar has no economic value.
The depreciation of the dollar has certainly been the focus of much discussion by reasonable people recently. And if reasonable people are talking about it, then unreasonable people will also be talking about it. But if you believe that the falling dollar is the explanation for why oil prices are going up, then maybe you also think that Osama Bin Laden’s real mission is to reverse global warming.
Venezuelan President Hugo Chavez also offered his thoughts on the value of the dollar:
The empire of the dollar is crashing…. we had a chance to talk about it in Tehran [on Nov. 19], creating together a sort of currency, a basket of currencies. So instead of carrying out transactions only in dollars, including in that basket the euro, the yen, the yuan and why not the (Venezuelan) bolivar?
I can’t improve on Mish’s analysis:
Before continuing, it is clear that this basket of currencies deserves a name. I propose we call it the WHISIT. This stands for “What the Hell Is It?” But the name does not really matter. If you have a better one, please send it my way.
Regardless of what the basket is called, politics is ruling over sanity.
No one ever buys anything in a basket of currencies. For example, go to the store and try and buy a loaf of bread in WHISITs. It can’t be done. Nor can one buy gas in WHISITs, or for that matter anything else. The same holds true in Europe. I defy anyone to buy anything anywhere in a basket of currencies regardless of what that basket is called. The only way it can be done is by exchanging everything in the basket to the local (favored) currency. What a headache for those walking around with Swiss Francs in their pocket trying to buy a loaf of bread in the US.
The currency in which oil exporters hold their assets matters a great deal. The currency in which the price of oil is quoted matters substantially less. And the latest economic insights offered to the world press by Ahmadinejad and Chavez are to me worth substantially less than those much-maligned pieces of green paper with George Washington’s picture on them.