Price of Oil and precious metals based on a currency other than the US Dollar?

It would be a disaster for the US; some people have even said that one of the reasons Iraq was invaded was because Saddam was starting to use Euros for Iraqi oil rather than US$.

Let me explain why I say it would eb a disaster.

You see, what makes the US$ special is that it is the reserve currency of the world, that is, central banks all over the world keep their reserves in US$. They are likely to have small holdings of the Euro, and some currencies of their major trading partners, but across teh world the US$ is what they keep.

Now they don't just keep notes and coins, but buy US$ denomnated bonds issued by the US government.

The US government issues these bonds because the US runs a deficit in the balance of payments, that is the US buys much more goods and services from the rest of the world than it sells. This deficit has to be financed, and while selling say the Sears tower and such assets would help, the perfect solution is to issue US$ bonds.

It's the perfect solution since the US can finance its deficit by paying some minor interest, but the key is that due to the reserve currency status, countries are likely to keep buying the bonds and financing the US deficit for the foreseeable future. The buyers and happy because they have their reserve currency. The US is happy since the deficit is financed cheaply; it's very close to having found a money printing machine that doesn't cause inflation.

But if tomorrow prices are quoted and trades in commodities are done in Euros, then many countries would rather use the Euro as the reserve currency. Then they wouldn't keep buying the US$ bonds and the US would find it difficult to finance its deficit. The US$ would definitely drop, crash even. Prices of imports in the US would shoot up, and the lives of many people would be made that much harder.

Of course the devaluation of the dollar is in itself an adjusting mechanism in that as imports get more expensive, people in the US will buy less of them, and thus slowly the US would reduce the deficit.

But imagine the pain. No more cheap foreign cars, no more cheap food or t-shirts from China or Mexico, no more cheap holidays in Mexico...

Furthermore, the US would probably lose its competitive edge. The US constantly attracts the best talents from all over teh world, and these brains propel the US industries forward. But if the US$ depreciates so much, they might prefer to go elsewhere, the US could lose its competitive edge...

Hate to be the bearer of the bad news, but the dollar IS rapidly dropping in value compared to the Euro, Canadian dollars and other world currency. Canada's dollar has not "increased" in value recently, the dollar has decreased. The are within about 2 cents of each other last I checked. The value of gold is probably the most stable indicator of value, and it's price is rapidly rising due to runaway inflation of our currency. Our dollars no longer have as much value on the international market, as most other nations know that our economy is terribly overextended to wage war in distant lands while our businesses are staggering under mountains of debt. It will probably get worse before it gets better.

I think it would have no impact on the price of oil, but there would suddenly be a huge influx of tourists as a vacation in America would be like us going to say, Vietnam today. Mexicans would find America to be a bargain compared to their country, and Canada would probably just go ahead and buy us for cash up front. I guess it depends how much of a devaluation we are talking here.

It would hurt the US currency as lower demand for the currency. if you look at the prices of those commodities yes their price rose globally, it did not grow as much as it seemed to for the US. as our currency fell, if you were say in Canada where their currency value has grown significantly, those items have not gone up as much:

example a few years ago Canada dollar = 75 cents, so having the price of oil say at $60 a barrel took $80 canadian dollars; now oil went up to say $90 dollars but their dollar is par with US, so it Costs them $90 Canadian dollars.

So in the US oil went up 50%, but for Canada it went up 12.5%

Price of oil and precious metals are not pegged with any currency. As US dollar is being declared as world currency in 1948 which was backed by gold ( 35$=1 oz gold). Because of this reason there is demand for US dollar. This is the reason why all countries in the world export commodities even if US is not giving any value other than papar money. We abolished gold standard in 1971.

As USD is world currency, price of oil and gold are just declare in US currency. If it was pegged with US currency then there was no up down of gold and gas in US.

In 1999 US made an agreement with OPEC countries to sell their oil for US dollars only. So as all countries need oil they have to have US dollars to buy oil. To get US dollars they export their products to US and collect paper money and buy oil.

By exporting huge products Some countries in the world have surplus US dollars with them. And US in total has more than 9.2 trillion dollars of debt. And US is adding additional 2.5 billion dollars per day to this huge debt. Means foreign countries still investing 2.5 billion US dollars every day. You can imagin Now Bush has declared as he will going to distribute 140 Billion dollars to all americans. Its just an investement of 56 days by foreing countries.

In case foreign countries stop buying our debt means stop investing in america what may happen to our economy. I think US dollar may go half in one day. As all countries have got US dollars as their reserve currency, If dollar fall they lose money. so they dont want to lose money and thus still investing money in US.

But this may not run for long time. Say now China is buying raw material and energy in world for more money and sell their ready products for less money or say no money ( Because US is not paying any money other than paper bills) They cannot afford this for long run. So we US and whole world is running in critical situation. a little changes may affect huge in US like housing crises, stock market fall. so on.

Precious metals aren't 'pegged' to the U.S. dollar, nor is oil, (though the OPEC consortium DOES use US dollars in setting crude oil prices-per-barrel.)

In fact, it would be much closer to accurate to say that the US dollar is 'pegged' to oil and precious metals... but even that would be misleading, as, in actuality, the US dollar is 'pegged' to nothing at all, other than the collective belief in it's supposed value.