Oil priced in a basket of currencies, not the US dollar?

The British newspaper The Independent published a report today of negotiations among China, Japan, Russia and France and Middle Eastern oil producers to transition the pricing of oil from US dollars to a basket of non-US currencies over the next nine years.

Although the Saudis have denied the report, the article is quite detailed and the paper claims to have confirmed the story with banks in Hong Kong and the Persian Gulf.  My experience with accounts like this is that in the US they end up being completely false, but in other countries they tend to be fundamentally correct, though with the details sometimes only roughly true.

A movement like this would also make economic sense.  It would diminish the role of the US dollar as the world’s reserve currency–a political goal of mainland China, France and Russia.   More important economically for the countries involved, it would eliminate the vagaries of the dollar from the pricing equation and stabilize the real value of the commodity.  It also indicates, of course, the expectation of a smaller role for the US and for the dollar in future world commerce.

The article also mentions gold as a temporary part of the basket–presumably the reason for the rise in the gold price today.

To me, the main message of the article is that the world is farther along than I would have thought in planning to retire the US dollar as the global reserve currency.  The near-term implications are, I think, a somewhat weaker dollar.  In the longer term, though, this would imply limits, possibly severe limits, on the ability of Washington to run a budget deficit with impunity, as well as higher domestic interest rates.

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