[OPE-L:6044] petrodollars

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Fri Oct 05 2001 - 13:34:47 EDT

thanks much for the questions. 
in ope-l 6024 I downloaded an article from the economist in which the claim is 
made that over and above the use of the recent surge of petrodollars to pay off 
enormous dollar debts and to make new arms purchases OPEC members are 
converting petrodollars into one billion dollars of US treasury debt per month. 
the article also suggests that the spike in oil prices has bolstered the value 
of dollar and undermined the rise of the euro as an intl reserve currency. So 
there is the question of the priviliges of seigniorage that the US may be able 
to maintain as a result of the continued pricing of oil in dollars--spiro 
reports how saudi arabia has historically fought off OPEC attempts to accept a 
basket of currencies. 
Spiro reports that Gulf purchases of US treasury debt is kept secret even from 
the CIA. See below 
These are not good answers, and certainly the claims that I have been making 
about the four fold importance of the Gulf to the health of american capitalism
have to be empirically verified. 

frankly, i do not know how to go about quantifying the advantage of the loan to 
American capitalism that Spiro describes:

 "So long as OPEC oil was priced in US dollars, and so long as OPEC invested 
 the dollars in US govt instruments, the US govt enjoyed a double loan. THe 
 first part of the loan was for oil.The govt could print dollars to pay for 
 oil, and the American economy did not have to produce goods and services in 
 exchange for the oil until OPEC used the dollars for goods and services. 
 Obviously, the strategy could not work if dollars were not not a means of 
 exchange for oil. 

 "The second part of the loan was from all other economies that had to pay 
 dollars for oil but could not print currency. Those economies had to trade 
 their goods and services for dollars in order to pay OPEC. Again, so long 
 as OPEC held the dollars rather than spending them, the US received a loan. 
 It was therefore important to keep OPEC oil priced in dollars at the same 
 time that the govt officials continued to recruit Arab funds... 

 "The Saudis...had the greatest proportion of dollar denominated reserves in 
 OPEC. This meant that their reserves were diminished by the [post 
 12/77-rb]depreciation of the dollar (compared to the basket of their 
 imports)> But it also meant that they had the most to lose if a shift by 
 OPEC to a basket of currencies [note: urged by Kuwait!!!--rb] threatened 
 intl confidence in the dollar. Having agreed to invest so much in dollars, 
 the Saudis now shared a stake in maintaining the dollar as an intl reserve 

 Oil is still priced in dollars." pp. 121-4 

 i'll see what i can find, but i would really appreciate it  if the masters of 
empirical analysis on this list--fred, paul c, allin and others--can point me 
to where I should look for raw data in order to have some quantitative sense of 
the importance of the gulf to the political economy of the US. 


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