Oil, fiat Dollars and the Euro

[Back]

Alright all you economic experts out there... been reading about this from various internet sources and was curious who might help explain what is occuring.

As I understand it, the US switched from gold to oil to back its dollar back in the Nixon era. The US gives out fiat dollars to countries who give us oil, which they then use to purchase goods back from the US. This fiat dollar is something the US can print as much as it wants.

There seems to be a ripple in the global economy about countries wanting to switch from the US dollar to the Euro and that doing so could have a huge impact on our economy.

Anyone take a stab at a better summary with a little more explaination? At work right now so I can’t research it.

Thanks.

[StrayRogue]

I'm all for it.

[Makkah]

<<As I understand it, the US switched from gold to oil to back its dollar back in the Nixon era>>

I thought we switched from silver in the Nixon administration?

[Parkbandit]

We're taking over Iraq now.. and the only reason we went there was for the oil. Pretty soon, we won't have to give out those fiat things because we'll have plenty of our own oil.

/sarcasm.

[Iriscience]

Due to me being an economics major and the fact we just over this is my international economics class, I feel required to answer.


Originally posted by Backlash

There seems to be a ripple in the global economy about countries wanting to switch from the US dollar to the Euro and that doing so could have a huge impact on our economy.



It's isn't just a ripple. Iraq switched to selling their oil for euros instead of dollars in 2000, as well as other middle-east nations.


Saudi Arabia, is the head country of OPEC and has the most oil. They are able to control the amount of oil available because they are the only country without a set amount they are required to produce.

In the past Oil could only be bought from OPEC with dollars. This makes for a large demand for dollars from countries outside the US. Also allows the US to control world economy because we only have to print enough money to pay for our own needs.

Clearly switching oil from dollars to euros would seriously descrease the US power in the world economy. That's why we're invading those fuckin camel jockies.

[Warriorbird]

Hell, seems logical enough to almost make me support it.

[xtc]

The dollar isn't technically backed by anything currently. It was backed by gold until about 1972. A certain amount of gold was used as backing for each dollar and before that it was backed by a mix of of gold and silver.

I think the dominance of the US dollar is very much apart of what has happened in Iraq. If Euros become the standard for buying oil then the US dollar will plummet.

Fiat money is simply money that has value by fiat or decree of a government and is not backed by a commodity. Essentially all US dollars are fiat money.

[Edited on 2-24-2005 by xtc]

[longshot]

Originally posted by Iriscience
Due to me being an economics major and the fact we just over this is my international economics class, I feel required to answer.

....

In the past Oil could only be bought from OPEC with dollars. This makes for a large demand for dollars from countries outside the US. Also allows the US to control world economy because we only have to print enough money to pay for our own needs.



It has zero to do with "printed" dollars.

Absolutely nothing.

[Iriscience]

" Oil can be bought from OPEC only if you have dollars. Non-oil producing countries, such as most underdeveloped countries and Japan, first have to sell their goods to earn dollars with which they can purchase oil. If they cannot earn enough dollars, then they have to borrow dollars from the WB/IMF, which have to be paid back, with interest, in dollars. This creates a great demand for dollars outside the U.S. In contrast, the U.S. only has to print dollar bills in exchange for goods. Even for its own oil imports, the U.S. can print dollar bills without exporting or selling its goods. For instance, in 2003 the current U.S. account deficit and external debt has been running at more than $500 billion. Put in simple terms, the U.S. will receive $500 billion more in goods and services from other countries than it will provide them. The imported goods are paid by printing dollar bills, i.e., “fiat” dollars."

I was being concise, but longshot had be a *so there the quote directly from the essay we read in class.



[Edited on 25-2-05 by Miss X]

[Back]

Thanks, Iriscience. This information is probably already pretty well know in the economic circles. For the rest of us, its new. Well, at least it is for me. And I find it not only alarming, but amazed that such a system actually emerged.