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India and Iran drop US Dollar oil settlements

General discussions of the systemic, societal and civilisational effects of depletion.

India and Iran drop US Dollar oil settlements

Unread postby AgentR11 » Thu 07 Jan 2016, 09:28:34

And the shoe drops, as it were. No longer a fictional tin-foil prediction. A very large economy, and a very large oil exporter (which will likely expand substantially over the next year or few), are to settle their oil trade in rupee deposited in Indian banks. Completely outside the reach of US/EU financial sanction.

BRICS, not just a wistful dream anymore.

http://indianexpress.com/article/busine ... in-rupees/
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Re: India and Iran drop US Dollar oil settlements

Unread postby Tanada » Thu 07 Jan 2016, 10:58:43

How long until other countries openly commit to dropping dollar denominated trade?
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Re: India and Iran drop US Dollar oil settlements

Unread postby Pops » Thu 07 Jan 2016, 12:02:22

I really don't know much about currency markets but it seems to me a global economy with a patchwork of local currencies is inherently unstable – just as the US currency patchwork was unstable back when every bank had its own script.

The US$ is the default because we've been exporting dollars forever, first in return for oil, then for chachkas, then lately, for investment. Without a willingness to run a huge trade deficit, a currency can't be a reserve. Say whatever about LTO, it has lowered our trade deficit and the drop in dollars exported has increased the relative value of those dollars.
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Re: India and Iran drop US Dollar oil settlements

Unread postby AgentR11 » Thu 07 Jan 2016, 12:13:38

It'll be slow I think, but the path seems inevitable now. Communications technology makes it so easy to buy and sell in any arbitrary currency; drives costs of conversion down very hard at the high end of the transaction meter.

If Iran wants to buy rice for instance, they can buy it in rupee from an Indian wholesaler who bought that rice from Thailand in baht or dollar or gold-etf or whatever. The rice itself may never even be unloaded in India. No pieces of paper involved, just a mouse click, followed by a few more mouse clicks. Even something more complicated, with two or three steps through India and China, or even Russia, India, and China, can all happen very fast and very transparently. At a certain point, there's really not much advantage to being paid in USD unless you have very specific USD debt you want to service; and Iran doesn't.

I get what Pop's is saying about a reserve standard, but I think modern communications technology has reached the point where it will start eroding the advantage that using any currency for a reserve might have had. Basically, I think the whole notion of a "reserve" currency will die.
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Re: India and Iran drop US Dollar oil settlements

Unread postby Pops » Thu 07 Jan 2016, 12:26:08

I think that is probably right. A reserve currency has advantages for whoever controls it but the very act of control makes it not such a good reserve. Most countries now are democratic and "free market" to some extent. Currency manipulation is one of the last vestiges of the old nationalistic mercantile economies. Part of the reason China is in a dither is they are devaluing their currency in order to prop their exports.
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Re: India and Iran drop US Dollar oil settlements

Unread postby Outcast_Searcher » Thu 07 Jan 2016, 13:27:15

AgentR11 wrote:It'll be slow I think, but the path seems inevitable now. Communications technology makes it so easy to buy and sell in any arbitrary currency; drives costs of conversion down very hard at the high end of the transaction meter.

If Iran wants to buy rice for instance, they can buy it in rupee from an Indian wholesaler who bought that rice from Thailand in baht or dollar or gold-etf or whatever. The rice itself may never even be unloaded in India. No pieces of paper involved, just a mouse click, followed by a few more mouse clicks. Even something more complicated, with two or three steps through India and China, or even Russia, India, and China, can all happen very fast and very transparently. At a certain point, there's really not much advantage to being paid in USD unless you have very specific USD debt you want to service; and Iran doesn't.

I get what Pop's is saying about a reserve standard, but I think modern communications technology has reached the point where it will start eroding the advantage that using any currency for a reserve might have had. Basically, I think the whole notion of a "reserve" currency will die.

Agent, I think you're exactly right, and I repeated your post because I think you stated the case very well. I've LONG argued this principle, and have never seen what I consider to be a convincing counter-argument.

My angle is that the Forex market is HUGE and liquid, and so creating hedges that let you hold WHATEVER basket of net liquid currencies is, as you say, as easy as a mouse click. Thus, there is NO reason a country needs to actually hold net foreign US dollars in reserves. Thus the idea of the USD as a reserve currency "required" to trade oil and thus raising the demand for the US dollar significantly is made a moot point by modern (as you say) communications technology.

So, countries will hold net amounts of currency in relation to what they WANT to hold, based on the credibility of the country, its policies, its economic standing, etc -- NOT what some foreign reserve currency rule says it must hold (in one designated account).

So for example, if country X is required to hold $10 billion USD in a reserve account to cover their normal purchases of oil from OPEC, this means NOTHING about their overall position in $USD. For example, they could be SHORT $20 billion or $100 billion, etc. in their primary Forex account and hold (long) Swiss Francs, Yen, etc. to cover their actual currency needs. Or they could simply ensure they are net flat $USD, etc.

Here's an article with a little commentary on the practical significance (i.e. lack thereof) of reserve currency status in the modern world:

http://www.vox.com/2015/12/2/9836164/ch ... rrency-sdr

Australia has run bigger trade deficits for longer than the United States, nobody holds Australian dollars as a reserve currency, and Australian governments are not wasting their time trying to convince anyone to do it.

The reason Australia can always run trade deficits is ultimately not that mysterious. Australia is a rich country with a credible legal system and a stable political order that also — thanks to immigration — has a substantially higher population growth rate than other advanced economies. That makes Australia well-suited to receive a net inflow of private investment money from the rest of the world. All this also applies to the United States, though to a lesser extent, and so we also can sustain large trade deficits.

The USD has been strong lately because of overall positive perceptions about the US economic standing and performance relative to the rest of the world. In a decade or three, the value of the USD will almost certainly primarily hinge on whether the US has lived up to that confidence -- not whether crude oil is traded in dollars or yuan or likely (IMO) some supranational currency reflecting the G20 or some such thing.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: India and Iran drop US Dollar oil settlements

Unread postby Outcast_Searcher » Thu 07 Jan 2016, 13:33:59

Pops wrote:I really don't know much about currency markets but it seems to me a global economy with a patchwork of local currencies is inherently unstable – just as the US currency patchwork was unstable back when every bank had its own script.

Pops, currencies have gyrated all over the place as countries' economic and geopolitical fortunes have changed, for many decades. This is a good thing, as it motivates countries not to do really "bad" things and erode their own economic power compared to the world at large. It is unstable, but it is manageable over time, just like the modern stock markets. And it's sure a lot better than some arbitrary fiat value decreed by certain governments, with no market constraints/consequences.

Markets aren't pretty short term. But they do have powerful advantages long term. They make the global patchwork of currencies more stable (in the long run), for one. They foster practical international trade, for another.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: India and Iran drop US Dollar oil settlements

Unread postby ennui2 » Thu 07 Jan 2016, 15:11:40

pstarr wrote:Is it a function of peak oil? (Is everything peak-oil related? My foot fungus? The god-durned gophers in my yard :-x ).


The answer is yes, because you apply Church Lady logic to Peak Oil, therefore rendering your analysis useless.
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Re: India and Iran drop US Dollar oil settlements

Unread postby Subjectivist » Thu 07 Jan 2016, 17:05:23

It has long been known that dollar reserve agreements give America a large advantage in international trade. The world accepted this because from the early 1970's to 2008 it worked well for the rest of the world as well. The problem is since 2008 America has been on a printing or digitizing binge however you like to say it. Either way the advantages for the rest of the world have evaporated while the advantages for America have remained. Most of the world no longer sees American dollar reserve currency as a good thing like they did in 1975, so naturally they are looking for ways to change the system.
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Re: India and Iran drop US Dollar oil settlements

Unread postby Outcast_Searcher » Thu 07 Jan 2016, 17:19:18

Subjectivist wrote:It has long been known that dollar reserve agreements give America a large advantage in international trade. The world accepted this because from the early 1970's to 2008 it worked well for the rest of the world as well. The problem is since 2008 America has been on a printing or digitizing binge however you like to say it. Either way the advantages for the rest of the world have evaporated while the advantages for America have remained. Most of the world no longer sees American dollar reserve currency as a good thing like they did in 1975, so naturally they are looking for ways to change the system.

This was probably true in the 70's. At some point, the power of computers and networks has largely negated such advantages. Given the history of HFT via such books as "Dark Pools", a date range of roughly 2005 - 2010 probably defines the bounds of any meaningful advantage.

If you want to believe the world is static and things don't change and people (or countries) can't use the FX markets to hedge, and thus hold whatever net currency positions they want, feel free. That doesn't change the reality.

The reserve currency will change. And it won't matter much.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: India and Iran drop US Dollar oil settlements

Unread postby Pops » Thu 07 Jan 2016, 19:27:03

The reason for a smaller economy to hold reserves denominated in the currency of a more stable economy seems pretty obvious. Basically people (except for some Americans) don't expect the dollar to become worthless overnight and they know that although it is manipulated to some extent it is mostly market oriented.

The Rupee doesn't float, neither does the yuan and the Iran rial is totally fixed. The Feds actions are completely transparent and signalled way ahead of time. China just sends out a press release, maybe.

But the thing is you don't just tap on a keyboard and instantly up pops up whatever amount of dollars or whatever currency. They have to be out there before you can convert your local clams or whatever currency into Dollars, Pounds Euros or whatever.

Again, the money doesn't come from thin air just because someone taps an order into a FX market, The money has to be put there, either by investors looking to trade or because the US exported it to buy whatever from whomever and they want to convert it to their local Clam Dollars. But mostly it is out there because everyone want dollars and begs us to import their stuff on credit - because that means they get dollars some time in the future and they know dollars are safe.

2/3 of reserve currency is US dollars, no other currency is going to displace it soon, there just isn't enough of anything else out there and it doesn't just appear. We worked hard consuming trillions of dollars in oil and assorted chachkas to put them bucks out there!

Image



Oh, and the dollar is doing very well... interestingly the increase in the value of the dollar coincide exactly with the fall in the price of oil.


Image


At least that is my take...

Here's a good article...
http://financesonline.com/4-reasons-why ... -currency/
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Re: India and Iran drop US Dollar oil settlements

Unread postby Tanada » Sun 05 Mar 2017, 11:04:07

Iran becomes India’s 3rd largest oil supplier: Iran sold 19.8 million tonne crude oil to India in the first nine months of the FY17 behind Saudi Arabia’s 30.3 million tonne and Iraq’s 29.1 million tonne , officials say

New Delhi: Iran has zipped past the likes of Venezuela and Nigeria to become India’s third largest oil supplier as easing western sanctions enabled Indian companies to increase purchases from that country.

Saudi Arabia and Iraq continue to be ahead of Iran, which was sixth biggest supplier of crude oil to India in 2015-16. It has overtaken Venezuela, Nigeria and UAE to become India’s third largest supplier in April-December period of 2016-17.

Iran sold 19.8 million tonne crude oil to India in the first nine months of the current fiscal, officials said. This is behind Saudi Arabia’s 30.3 MT and 29.1 MT sourced from Iraq. In full 2015-16 fiscal, Iran had supplied 12.7 MT crude oil to India. That year Saudi Arabia had sold 40.4 MT oil to India with Iraq chipping in 26.8 MT. Venezuela supplied 23.6 MT, Nigeria 23.4 MT and UAE 15.7 MT.


http://www.livemint.com/Industry/XDOlK1 ... plier.html
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Re: India and Iran drop US Dollar oil settlements

Unread postby KaiserJeep » Sun 05 Mar 2017, 12:29:41

Yet, the US$ is still doing well, and is more than ever, the reserve currency of the World:
Image
...in fact, the Trump Presidency is apparently very good for the US Economy. (Hint: You might want to cash out in 2020 or before, and buy the homestead.)(Before people notice the oil shortage.)
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Re: India and Iran drop US Dollar oil settlements

Unread postby evilgenius » Sun 05 Mar 2017, 13:10:28

Tanada wrote:How long until other countries openly commit to dropping dollar denominated trade?


That's a really good question. Now we see why it is very important that Trump settle into the job and stop the erratic behavior that causes people not to trust him. The rest of the world is watching, and they get to make up their own minds. I wondered about this when Trump killed US participation in that Asian trade pact which was essentially an agreement designed to protect other trading partners in Asian from the power and size of China. He threw them under the bus, and said he was doing something else, protecting US jobs. Trump's messages seem pointed at his constituency, in particular the 50 million or so strong base he has spread across many states. Would you call that isolationist? It's seems like he might be playing with that notion with his border tax ideas, the wall and various other things he's touted. He needs that base. Without it he is vulnerable to the GOP establishment turning him out in a power grab. I think his behavior is as much about protecting himself form them as anything else. It's a pity the US is so polarized politically because he ought to be able to rely upon a loyal opposition to meet that sort of need. He's pushing them away, though, as fast as he can.
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Re: India and Iran drop US Dollar oil settlements

Unread postby Outcast_Searcher » Sun 05 Mar 2017, 13:33:03

KaiserJeep wrote:Yet, the US$ is still doing well, and is more than ever, the reserve currency of the World:
Image
...in fact, the Trump Presidency is apparently very good for the US Economy. (Hint: You might want to cash out in 2020 or before, and buy the homestead.)(Before people notice the oil shortage.)

The value of the dollar is certainly important to people that hold lots of them (relative to other currencies) like the vast majority of Americans. It buys a lot of stuff in (relatively) weaker foreign currencies, like the Euro, for example.

A lack of trust in the dollar long term is one of the reasons to hold precious metals -- as a hedge. Interestingly, both gold (compared to historical prices) AND the dollar remain pretty strong in recent years. I would say this implies there are a LOT of people globally who want a hedge, just in case.

I choose to hold my largest hedge in well diversified, low cost, ex-US index stock funds, as unlike Gold they tend to pay dividends and appreciate long term with the global economic growth. (I also hold gold and silver but in much smaller amounts).

So KJ, I certainly get and agree with your point that things could change and the dollar could weaken and being prepared is a good idea.

OTOH, I don't get the point about people noticing "the oil shortage". Are you assuming that we will sail staight from big glut to big shortage in X years due to reduced production due to current lower prices? If so, given how much shale production can be ramped up quickly (just in the US) according to articles I've read, that might not be a good bet. And in the multi-decade time frame, you run into the cumulative impact of improving efficiency, EV's (of all flavors) and all green energy build-out.

I don't know what the long term results are (hell, I can't even come close to predicting the oil price the next year in our annual price picking game), but I suspect that assuming that we rapidly return to a meaningful lasting shortage (i.e. enough to force high, say $100+ish) prices for many years is far from a sure thing.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: India and Iran drop US Dollar oil settlements

Unread postby Outcast_Searcher » Sun 05 Mar 2017, 13:39:07

evilgenius wrote:
Tanada wrote:How long until other countries openly commit to dropping dollar denominated trade?

Now we see why it is very important that Trump settle into the job and stop the erratic behavior that causes people not to trust him.

While think you're right, big picture, ALL politicians act pretty irresponsibly re the really important things (like AGW) and long term thinking. It's all getting re-elected (or supporting your party/constituents and what they think they want short term) all the time.

Thus, in the bigger picture, the whole mess in the entire first world isn't exactly credible longer term. We're focused on the three ring circus that is Trump and the debate surrounding Trump, but that's really just a blip in the longer term geopolitical and resource games (and of course BAU growth) that shape the global economy.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: India and Iran drop US Dollar oil settlements

Unread postby KaiserJeep » Sun 05 Mar 2017, 14:07:23

Outcast_Searcher wrote:-snip-
The value of the dollar is certainly important to people that hold lots of them (relative to other currencies) like the vast majority of Americans. It buys a lot of stuff in (relatively) weaker foreign currencies, like the Euro, for example.

A lack of trust in the dollar long term is one of the reasons to hold precious metals -- as a hedge. Interestingly, both gold (compared to historical prices) AND the dollar remain pretty strong in recent years. I would say this implies there are a LOT of people globally who want a hedge, just in case.

I choose to hold my largest hedge in well diversified, low cost, ex-US index stock funds, as unlike Gold they tend to pay dividends and appreciate long term with the global economic growth. (I also hold gold and silver but in much smaller amounts).

So KJ, I certainly get and agree with your point that things could change and the dollar could weaken and being prepared is a good idea.

OTOH, I don't get the point about people noticing "the oil shortage". Are you assuming that we will sail staight from big glut to big shortage in X years due to reduced production due to current lower prices? If so, given how much shale production can be ramped up quickly (just in the US) according to articles I've read, that might not be a good bet. And in the multi-decade time frame, you run into the cumulative impact of improving efficiency, EV's (of all flavors) and all green energy build-out.

I don't know what the long term results are (hell, I can't even come close to predicting the oil price the next year in our annual price picking game), but I suspect that assuming that we rapidly return to a meaningful lasting shortage (i.e. enough to force high, say $100+ish) prices for many years is far from a sure thing.


My point was that in spite of all the words said, the US $ remains strong and remains "the" World's reserve currency.

As for gold or other precious metals, let us review the basic strategy. First, as the DOW peaks, the metals bottom out - so if you bought PM's as the Dow was increasing, you are an idiot. When the Dow peaks and the PM's bottom out, THEN you buy PM's. Then, during the Dow's "correction" that follows each one of these wildly speculative increases, as the stocks tank and the PM's increase, you sell PM's to the fools that used to own stocks, and you buy stocks at bargain prices and gouge everybody with your PM's, and keep a good $ cushion in your accounts.

That IS what you are doing, correct? You are not playing the fool and hoarding the PM's for the Apocalypse?
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Re: India and Iran drop US Dollar oil settlements

Unread postby asg70 » Mon 06 Mar 2017, 03:25:56

Remember that the thread started with the ominous phrase "And the shoe drops".

It's now a year later and, well, nothing really has changed, at least nothing directly attributable to this. So I think this was another red-herring.

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-Billions are on the verge of starvation as the lockdown continues. (yoshua, 5/20/20)

HALL OF SHAME:
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-Frequent-flyers should not cry crocodile-tears over climate-change.
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