Via Buzzflash, I find this article from Catherine Belton of The Moscow Times:
President Vladimir Putin said Thursday Russia could switch its trade in oil from dollars to euros, a move that could have far-reaching repercussions for the global balance of power — potentially hurting the U.S. dollar and economy and providing a massive boost to the euro zone. …
A move by Russia, as the world's second largest oil exporter, to trade oil in euros, could provoke a chain reaction among other oil producers currently mulling a switch and would further boost the euro's gradually growing share of global currency reserves.
That would be a huge boon to the euro zone economy and potentially catastrophic for the United States. Dollar-based global oil trade now gives the United States carte blanche to print dollars without sparking inflation — to fund huge expenses on wars, military build-ups, and consumer spending, as well as cut taxes and run up huge trade deficits.
Almost two-thirds of the world's currency reserves are kept in dollars, since oil importers pay in dollars and oil exporters keep their reserves in the currency they are paid in. This effectively provides the U.S. economy with an interest-free loan, as these dollars can be invested back into the U.S. economy with zero currency risk.
If a Russian move to the euro were to prompt other oil producers to do the same, it could be a "catastrophe" for the United States, Ibrahim said. …
I'm not an economist, but I find this worrisome. Financing America's debt seems like it's important — even more important now that President Tax Cut has piloted a multi-trillion dollar swing from record surpluses to record deficits as far as the eye can see.
Paul Krugman who (unlike many of his detractors) is an economist, warns that barring corrective measures, America could be headed for an Argentina-style economic crisis. Among the "reassuring counterarguments" Krugman presents, though, is that America has the advantage of having its debt in its own currency:
Nasty crises in third world countries have a lot to do with the fact that their debt is in foreign currency, usually dollars. As a result, when the peso or the rupiah plunges, debts explode while assets don't, and balance sheets collapse. By contrast, thanks to the special international role of the dollar, America's burgeoning foreign debt is in our own currency.
What I'm wondering/worrying here is how Putin's proposal would change, and weaken, that "special international role of the dollar." What would happen if the world's second largest oil exporter were to switch from dealing in dollars to dealing in euros?
I'd like to see what Brad DeLong has to say about this.
(P.S. When are we going to get that euro-symbol on our keyboards, or at least in the special character menus? I work for a newspaper in one of the largest national chains and we still indicate amounts in euros with the spelled out word "euro," which is particularly annoying in headlines.)
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