The report yesterday in the UK's Independent newspaper by Robert Fisk triggered several slightly bizarre reactions which ranged from brandishing the respected reporter as a conspiracy nut to dismissing the allegations as not very useful since Mr. Fisk is not by training an economist. (Actually I would have thought that was to his credit).
What was questionable about the Independent article was the emphasis that was placed on the notion that pricing oil in another currency than U.S. dollars was really the thin end of the wedge which will lead to a phasing out of the greenback's role as the global reserve currency.
The problem with that part of the story is that it was not news, and nor does the pricing of oil really address the core issue which is the appetite that foreigners will have for dollar denominated securities, and in particular U.S. Treasuries. I have expressed views on the unsettling implications of relying solely on the U.S. dollar as the global reserve currency several times before including here, in this article , and also here.
As is often the case the Daily Telegraph's Ambrose Evans Pritchard has a good piece on the issue.
Beijing does not need to raise money abroad since it has $2 trillion (£1.26 trillion) in reserves. The sole purpose is to prepare the way for the emergence of the yuan as a full-fledged global currency.
"It's the tolling of the bell," said Michael Power from Investec Asset Management. "We are only beginning to grasp the enormity and historical significance of what has happened."
It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports – since denied – that China, France, Japan, Russia, and Gulf states were plotting to replace the Greenback as the currency
