Honest question: Can someone explain me why using gold instead of dollars to buy oil isn't the same as sell gold for dollars and use those dollars to buy oil?
[1] https://www.reuters.com/markets/commodities/ghana-orders-min...
The big difference:
2. Since you need large reserves (see 1), why hold USD and see it inflate away? No one holds USD. What they hold and trade are treasuries. The return is small, but if you have 10 billion in reserves, 100 million isn't spare change This is the real lynchpin:
- the massive market for treasuries significantly lowers the cost of the US' deficit. The US can debt finance itself artificially lowering taxes or inflation.
- To maintain this position, "dollars" have to available -> the US must run a deficit. If there were no more deficits, the debt would wither, there would be a global monetary contraction.
- Effectively this is a way of exporting inflation: the treasury issues debt -to finance government -> the t-bills are treated as equal to USD -> the excess currency is soaked up by 8 billion people instead of 330 million
- unlike cash, the treasury can wake up one day and wipe (I mean "freeze") your account if you've been naughty. Imagine PayPal writ large.
In the short run it works great for the US, but in the long run it makes exports more expensive therefore eroding US industry. Short term gain for long term pain? Politicians love it!
A holds gold.
B holds dollars.
C holds oil.
A trades B, gold for dollars. A holds dollars, B holds gold.
A trades C, dollars for oil. A holds oil, C holds dollars.
After your suggested trade result:
A holds oil.
B holds gold.
C holds dollars.
If there is no "middle man", party A gets oil, party C gets gold. Party B keeps their dollars. End result:
A holds oil.
B holds dollars.
C holds gold.
Assuming "B" is USA, USA doesn't get to export its inflation/funding for stimulus checks/student debt/pension crisis/(or in trump era - a wall that does nothing) away to "C", whoever that ends up being, meanwhile, Ghana gets the oil it wants, and "C" gets currency without having to pay for the choices of politicians they have no control over.
[1] https://en.m.wikipedia.org/wiki/West_African_CFA_franc
Say A, B, C account. A sells gold and get dollars from account B to account A. And now they can buy oil from owner of account C.
But who owns and runs these accounts or the transactions between them? One option is SWIFT system. Which Russia got excluded in some capacity from. As such it is clear that system cannot be trusted. Value of dollars there are very unlikely to be good for long term. And same applies to any accounts in banks in western influence sphere.
Thus directly transacting is better option in long run. For any country that wants to keep their economy stable.
That is quite a leap. Russia was also excluded from the NY stock exchange due to the ongoing sanctions; does that mean we can no longer trust stocks bought and sold there?
You're using the law of averages. Not all financial markets participate in the same sanctions to the same extent at the same time, which means that the decision about where to invest can be important.
> taking this absolute stance
You're the one characterizing this as an absolute stance, rather than a practical stance related to the current condition of the markets of the most powerful country that demands the most sanctions.
No, GP claimed that enforcement of any sanctions in international transfers means that the whole system can’t be trusted.
> You're the one characterizing this as an absolute stance, rather than a practical stance related to the current condition of the markets of the most powerful country that demands the most sanctions.
The original argument I was responding to claimed that one could not use financial institutions that participate in SWIFT. If you want to claim that’s a moderate, reasoned position, then ¯\_(ツ)_/¯
Ya, kicking them off SWIFT was pretty stupid. The spooks and the economists were super pissed.
Countries don't buy oil (or anything else) with a suitcase or few stuffed with $100 bills.* Instead, they have a really big bank move US dollars through the international banking system electronically.
Any really big bank that wants to keep its US-issued "Allowed to Handle US Dollars Electronically" License has got to follow a bunch of US-made rules. Which rules doubtless permit the US to make & enforce a very long blacklist, of various countries / organizations / people who the US doesn't want banks to work with.
(That said, I see no reason to suspect that Ghana has any interest in "Decoupling from the western financial system", as elzbardico put it. Though obviously the subjects of oil, gold, dollars, etc. are pushing a whole lotta people's emotional buttons in this item.)
*Yes, there are exceptions - usually involving sanctions-busting by folks who don't care about drawing hostile attention from the US.
Source?
There is no US-issued license required to use dollars internationally. This is stupid.
Do you mean this in some metaphysical sense? Because you can exchange USD for gods or services outside the US without the US government getting involved.
This creates a demand for dollars in Ghana, that puts downward pressure on the cedis.
So this avoids that, hopefully reduces inflation.