[benreesman]

I know some seriously sophisticated folks who are not only trading USDT at par, but even long, which I have long found puzzling given that anyone who didn’t just fall off the turnip truck knows it’s not even remotely capitalized to par.

My personal suspicion is that when a trivially distressed asset is valued at or above par by smart people that those people expect a bailout/recapitalization.

(Sidebar: USD is special among “fiat” currencies at the moment because its backed by the world’s largest military. Having guys with guns show up if you refuse to treat something as valuable is a pretty compelling argument to treat that thing as valuable.)

[nradov]

The US government hasn't used their military to force anyone to transact in dollars, or even threatened to do so. The dollar has value primarily because taxes inside the US are denominated in dollars. If you don't pay your taxes with dollars then eventually civilian law enforcement will show up and seize your assets.

[ansible]

> The US government hasn't used their military to force anyone to transact in dollars, or even threatened to do so.

There were rumors that Iraq under Saddam Hussein was looking to start pricing their oil exports in something other than dollars...

[323]

Oil is trading against Yuan for a number of years now:

> Traders appear to embrace yuan oil futures contracts, pricing them similarly to the Brent and WTI benchmarks, says analyst

> According to Bloomberg Intelligence, the volume of crude oil contracts traded on the Shanghai International Energy Exchange (INE) accounted for 10.5 per cent of the global volume at the start of June compared to 6.2 per cent in the second quarter of 2018.

https://www.scmp.com/business/china-business/article/3088802...

EU also wants to start trading oil in Euros:

https://pemedianetwork.com/petroleum-economist/articles/corp...

[notahacker]

And with the Euro being explicitly set up by other countries with the intention of challenging the USD as a global reserve currency without the US so much as wagging a finger at them, it's a little hard to believe that the "real" reason a US administration dominated by neoconservative hawks resumed a decade-old conflict with an outspoken enemy in a strategically important region full of oil at a time the country was obsessed with fighting sponsors of terrorism was the relatively insignificant decision to accept Euros for some types of international payment...

The best you could say about that theory is that it's confusing cause and effect. Other nations which have been hostile to and sanctioned by the US for some time also shifted from dollars to Euros.

[benreesman]

Ah absolutely, the much more tangible short-term example of “guys with guns” is (admittedly ever more militarized) domestic law enforcement.

But the implied threat towards anyone who say, started dumping US sovereign debt, or transacting petroleum in EUR, or whatever is very real. Countries have been liberated for less.

[nradov]

China dumped a bunch of US sovereign debt. They haven't been "liberated" yet.

https://www.cnbc.com/2020/11/02/china-drops-us-treasurys-imp...

Russia has started transacting petroleum in EUR. They haven't been "liberated" yet.

https://www.reuters.com/article/us-rosneft-contracts-euro-id...

Petroleum transaction only make up a small fraction of worldwide dollar use. It doesn't really matter.

https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...

[benreesman]

Thank you for the links. I was unaware that the PRC’s Treasury holdings had been pared back so much.

I do think it’s interesting to note that both of the examples you used are the only two countries that the US military wouldn’t like to try its hand against. And there is a broader point there: my original point becomes less relevant the further that global US hegemony slips.

[elvatoloco55]

Exactly. And this is not due to the fact that they are the global powers of enough strength to be a big opponent. /S

[RealityVoid]

I admit it is mighty convenient for the US to have the dollar as the reserve currency, but really, you are stretching your point, people outside US not accepting US dollars don't have violent threats looming over them.

[laserlight]

When enough players believe that US would use their military power in case necessary, it won’t be necessary to use it.

> The dollar has value primarily because taxes inside the US are denominated in dollars.

The amount of USD reserves outside US is huge. Entities that hold these reserves have no interest in paying taxes to US government.

[javert]

Besides the Iraq thing someone mentioned, Gaddafi in Libya got taken out right after he spoke about wanting to sell oil in euros.

But most importantly, there's Saudi Arabia. Saudi Arabia has no military except the US military, and Saudi Arabia prices oil in dollars. It isn't conceivable that they could price oil in another currency and still receive protection from the US (i.e., continue to exist).

The US kind of "has" to continue this arrangement because if the world stops trading oil in dollars, the demand for dollars plummets and the dollar crashes because there are just too many dollars out there. The Fed can't "suck in" all that excess money without causing a severe recession/depression.

[nradov]

The US gains some minor benefits by providing the reserve currency used for most international oil trades. However that's only a small fraction of worldwide dollar use. Even if everyone switched to trading oil in euros tomorrow that wouldn't cause a dollar crash.

https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...

[javert]

This article is interesting and helpful. So, thanks.

That said, I'm not 100% convinced. If we stop trading oil in dollars, doesn't that reduce the need for countries to keep dollars in reserve? It could be the beginning of a slippery slope.

[notahacker]

The amount of dollars kept in reserve to trade oil with certain petroleum exporters is a tiny proportion of total dollars in circulation

What is useful is having quadrillions of dollars of other payment obligations denominated in dollars, from the IRS to mortgage debt to IMF loans to international financial markets to people paying cash rent in Ecuador, and a central bank that can raise interest rates if it believes the demand for dollars is falling.

Sterling is still valuable, despite the fact it stopped being the main global reserve currency decades ago and the UK doesn't have any real ability to invade people to change that.

[jcranmer]

> Besides the Iraq thing someone mentioned, Gaddafi in Libya got taken out right after he spoke about wanting to sell oil in euros.

Source? Specifically, a source that can pinpoint a statement by a Libyan official in the immediate run-up to the intervention in Libya (i.e., late 2010 or early 2011) indicating a desire to switch to selling oil in euros.

The closest I've ever seen to such a source is that one of the cables released in the Wikileaks leak reported that a source close to Sarkozy outlined a few reasons why he wanted to intervene of Libya, one of which was a desire to replace the CFA franc (effectively backed by France) with a gold-based Libyan dinar.

[atatatat]

That's all I needed to see.

And apparently it was enough for the Secretary of State's people to see, too.

[jcranmer]

I... am stunned why people think this in any way supports the narrative of petrodollar-supremacy. Because neither oil nor dollars are implicated in that string of statements at all. Especially GP's summary of the statement--"we bombed Libya because they wanted to price oil in euros instead"--is at complete odds with the implied statement here--"Libya wanted to move from euro-backed currency."

Now it's important to note the context of the source. The diplomatic cables are--effectively--gossip reports. In general, they're not indications that anyone actually believes them, nor indications that their reports are causes for action. A report that a French president is concerned about threats to French suzerainty in its former African colonies is exactly the sort of thing that I'd go "right, I believe that... and I don't care." There is yet, to my knowledge, any evidence that this actually influenced US foreign policy in any manner whatsoever, let alone supports the petrodollar-supremacy narrative.

[atatatat]

If not supremacy of dollar, what reason do you hold dear for the toppling of yet another sovereign government in this case?

[javert]

I haven't taken the time to look for a source. Maybe it really is just a rumor.

[rmah]

Saudi Arabia has the fifth largest military budget in the world. They spend more than Germany, France or the UK. Their training and readiness probably isn't nearly as good, but to say they have no military is ... odd.

More to the point, many nations sell oil for non-USD. It's quite common. Further, the oil trade is a small fraction of international USD movement. The idea that the "petrodollar" is a major factor in international politics is... unlikely to be true.

[javert]

Wikipedia says the Saudis have the 9th largest defense budget in the world. They also have a decent sized army, navy and air force. TIL.

I was under the impression that the Saudis literally didn't have a military, because the ruling family was afraid of coups.

[nradov]

Saudi Arabia has a large military to deal with external threats. And they also have a large and separate National Guard to protect the royal family from coups and terrorists.

[atatatat]

They have exactly as much military as they purchase from US and Israeli contractors/loan from militaries.

[atatatat]

> many nations sell oil for non-USD

Name the largest, why obfuscate?

[unmole]

> Saudi Arabia has no military except the US military

This laughably wrong.

[javert]

The conversation has moved on (meaning, you're right, and it's already been pointed out and discussed by others).

You should read the other comments before you add your own.