longoil

How China's Dollar Peg Keeps Oil Prices High

Keith,

I would agree with you partially (maybe 30%) that oil prices from 2003 to 2008 can be attributed to USD currency flucations. I base this on fact that oil prices rose 7 times when priced in USD and only 4.6 times when priced in Euros during that same period.

If you super impose EIA data oil production for the last 20 years on your oil price graph, you will see that the rise in oil prices corresponds perfectly with oil production plateauing from 2003 onwards at 85 mbls/day. The biggest driver for oil prices is that we have reached the global oil production. If it were not for the financial metltdown of late 2008, oil would still be hovering at $150 USD or higher.

According to the 2009 BP Statistical Review of World Energy,
“Led by China, the developing nations of the world now consume more energy than the industrialized countries”. China is definitely affecting oil prices (upwards), but primarily due to the laws of supply and demand.

One World, One Currency?

The concept of a global currency is not a new concept. In fact, Western European nations and Japan had their currencies pegged to the US dollar (which was a gold standard currency for central banks) from 1944-1971 as per the Bretton Woods accord. Things started to unravel when was a run on gold in the late 1960's.

The problem with a global currency is who will set banking policy. The "Euro" only became possible because a strong economic union had existed between member nations, who have similar cultures and banking systems, for 35 years prior to the common currency being established.

I don't see the US accepting a highly reduced role in setting banking policy in this new global currency. I dont think the USA will accept the influence of other substantial stake holders with diverse cultural and banking standards like China, Saudi Arabia, Japan, Russia, etc.

Look what happened with the Euro, England could not agree to the EU central banking policy and wound up keeping its only currency in the end. If a global currency is established, I think the USA will follow the footsteps of the British and keep their own currency.