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Ghana plans to buy oil with gold instead of dollars
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Re: Ghana plans to buy oil with gold instead of dollars
#72To all opining about the ongoing demise of the dollar, please take a look at a 10 year DXY chart. Executive summary: It’s stronger than ever.
1) it was much stronger in 1985
2) just because it’s strong now doesn’t mean it cannot ever fail. Ray Dalio’s new book might interest you as he breaks down past world powers and how their currencies (which were global reserve currencies at the time) collapsed
Re: Ghana plans to buy oil with gold instead of dollars
#73For people saying that this is a sign of the dollar dominance ending consider this. Gold is valued in dollars. Oil is valued in dollars. Any gold for oil exchange will be decided by the going dollar rate of each. Counter parties and middlemen assisting this trade will be hedging their positions with dollar settled derivatives traded on deep and liquid dollar markets.
>> Gold is valued in dollars. Oil is valued in dollars.
If a long term contract is signed it protects you from dollar's inflation/volatility as the contract used gold as currency. I think this is important as tomorrow Fed's decision is no longer that important for your energy costs.
The more important part is that if enough contracts are signed in gold(highly unlikely given U.S's oil exports) then the dollar is no longer relevant to the oil price.
Re: Ghana plans to buy oil with gold instead of dollars
#74Earlier quoted context omitted.
I'm only at the level of guessing for topics like this, but my guess is that a chain reaction is more likely to see a switch from USD to Renminbi than a switch to gold (or Euros). China because of the potential assuming similar GDP/capita as the current USA. Not soon because I expect as a prerequisite for change being the new winner's GDP to be dominant rather than just joint top 3 in a ranking system that changes th…
Do you think GDP is the critical factor for determining a global reserve currency? IMO, respect for property ownership rights, legal/judicial recourse, ubiquity of US banks, and political stability are large contributing factors that few other countries can compete with. China has a pretty checkered past regarding ownership rights for citizens who are critical of its leadership.
I suspect it's a prerequisite, though perhaps not the only one.
I also suspect that political stability is more likely to favour China than the USA over the next few decades — it is very human for success to be followed by the assumption of indefatigability and that to be followed by fighting over who leads the nation, rather than continuing to focus on what actually made a nation dominant and how to keep it that way. The UK lost its literal empire that way; the Soviet Union took 50 years to go from agrarian to space, but by the end they had become at least as out of touch with their own people as the last Tsar had been; I think the US may lose its metaphorical empire similarly to the UK's actual empire, though the group deciding to call itself "The Tea Party" at least implies the possibility of it failing, with analogy to the USSR, in the same way it was formed.
Re: Ghana plans to buy oil with gold instead of dollars
#75Earlier quoted context omitted.
For two parties to transact in dollars they need either to physically hold large amounts of dollars. Or have access to some shared ledger that is accounting system where transactions can happen. 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 syste…
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Putting your entire economy at risk of being turned off advisory due to unknown future political disputes is a risk to the sovereignty of nearly every country in the world. Many countries are now looking for alternatives after the neutrality of swift/the dollar was eliminated.
Re: Ghana plans to buy oil with gold instead of dollars
#76For people saying that this is a sign of the dollar dominance ending consider this. Gold is valued in dollars. Oil is valued in dollars. Any gold for oil exchange will be decided by the going dollar rate of each. Counter parties and middlemen assisting this trade will be hedging their positions with dollar settled derivatives traded on deep and liquid dollar markets.
It's obviously possible to buy gold in non-USD currencies. So I think the gist of your comment applies to the dominance the US has over oil markets. So while the "petrodollar" era is still ongoing but its day seem numbered, e.g. by pushing Russia to seek other export markets besides the West, by the increasingly cool perception of the US by OPEC nations [1], etc.
[1] https://www.forbes.com/sites/rrapier/2022/10/05/opec-thumbs-...
Re: Ghana plans to buy oil with gold instead of dollars
#77For people saying that this is a sign of the dollar dominance ending consider this. Gold is valued in dollars. Oil is valued in dollars. Any gold for oil exchange will be decided by the going dollar rate of each. Counter parties and middlemen assisting this trade will be hedging their positions with dollar settled derivatives traded on deep and liquid dollar markets.
Gold isn’t valued in dollars. You can sell gold for any currency. Oil is primarily transacted with dollars because it’s the worlds reserve currency. But if that were to change to whatever, you can still sell your oil and gold for whatever the new dominant currency is. Meanwhile your dollar is (presumably in this case) worth way less in terms of buying power than when you first bought it.
You can always barter anything for anything else, but how do you decide the rate to barter at? It’s determined by the rate for the most liquid markets for the two sides, because the price of an asset in the most liquid market is the price all other markets will follow. There just aren’t gold based markets that are even remotely comparable to usd ones, so the ratio of gold to oil is set by their respective rates in usd.
To see an actual switch from usd to gold for valuing oil, you’d need to see the market liquidity migrate from usd/oil pairs to gold/oil pairs. Ghana making a political statement isn’t that.
Re: Ghana plans to buy oil with gold instead of dollars
#78Honest 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?
Decoupling from the western financial system and having a higher level of resilience from sanctions. You never know if the US will decide tomorrow you're not behaving as expected under the internal rules-based order.
Why would the US be able to stop them buying oil using their dollars?
Re: Ghana plans to buy oil with gold instead of dollars
#79Realistically, how much gold does Ghana have to actually sustain this long term?
Would they be trading in Gold for other exports?
Re: Ghana plans to buy oil with gold instead of dollars
#80Interesting the pressure is increasing. More and more countries questioning why they need to base their foreign transaction on the US Dollar. Could this mounting unrest be as a result of the seeming inability of the US Federal bank in checking inflation of the US Dollar. Also, some of these Nations can no longer determine what benefit it is to them is using the US Dollar as their reserve currency and trading currency…
As for what happens next: de-globalisation I predict we'll see blocks forming up again, something like: - West (US+EU) - East (China+Russia) - India (India, Sri Lanka, Himalayan States, South China states) - Middle (Middle East+North Africa) - Latam (Central + South American States) One wild card IMO would be the rise of the Indian sphere of influence. I'll leave some room for India's remarkable ability to snatch def…
> East (China+Russia)
People that keep bunching Russia with China are deluding themselves that Russia is anywhere on China's radar except as a source of cheap resources (gas, oil, wood)