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Author Topic: India to pay for Iran's oil in gold  (Read 2508 times)
istar
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January 24, 2012, 04:58:49 PM
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The move by India, if true, will have other unintended consequences: it will bring down the value of dollar.

If India does decide to pay Iran in gold, the decision will certainly push the price of gold high, especially as vast sums are involved in such transactions, and that would hurt the value of the dollar.

http://www.rediff.com/business/report/india-to-pay-for-irans-oil-in-gold/20120124.htm

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January 24, 2012, 06:16:13 PM
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Here's the original source:
http://www.debka.com/article/21673/

Form your own conclusions on the reliability.

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January 24, 2012, 06:21:35 PM
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"DEBKAfile's intelligence sources disclose that Tehran has set up alternative financial mechanisms with China and Russia for getting paid for its oil in currencies other than US dollars. Both Beijing and Moscow are keeping the workings of those mechanisms top secret. "

Aha Bitcoins! They are paying with Bitcoins!


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January 24, 2012, 09:03:21 PM
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The move by India, if true, will have other unintended consequences: it will bring down the value of dollar.

If India does decide to pay Iran in gold, the decision will certainly push the price of gold high, especially as vast sums are involved in such transactions, and that would hurt the value of the dollar.

http://www.rediff.com/business/report/india-to-pay-for-irans-oil-in-gold/20120124.htm

Nonsense.  The relative values of the dollar vs. gold is because of the ratio of desire to hold the two assets.  If Iran wanted to hold gold now, they could buy it with dollars.

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January 27, 2012, 04:53:24 PM
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they should pay with bitcoins

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January 29, 2012, 03:55:57 PM
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they should pay with bitcoins

Not a chance. The oil exports from Iran to India are worth $12 billion per year. The bitcoin exchange rate would have to rise a thousandfold to support that kind of use.

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January 29, 2012, 05:03:53 PM
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Gold is put into market, so its price will fall. But USD is getting less relevant as well.
 ... compared to what?  ... uhm BTC of cause. Tongue

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January 31, 2012, 11:10:29 PM
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The move by India, if true, will have other unintended consequences: it will bring down the value of dollar.

If India does decide to pay Iran in gold, the decision will certainly push the price of gold high, especially as vast sums are involved in such transactions, and that would hurt the value of the dollar.

http://www.rediff.com/business/report/india-to-pay-for-irans-oil-in-gold/20120124.htm

Nonsense.  The relative values of the dollar vs. gold is because of the ratio of desire to hold the two assets.  If Iran wanted to hold gold now, they could buy it with dollars.

Some people argue that the primary reason the USD maintains its status as the world reserve currency is because it's the only currency you can use to buy oil.  This sustains the dollar's value even when we just keep printing more and are unable to pay our debts, because the USD acts as a proxy for oil, which everyone needs.  If gold became the new de-facto preferred payment for oil, then the desirability of the dollar world-wide would go way down relative to gold.

But of course India and Iran alone won't cause all this to happen.
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February 01, 2012, 01:50:15 PM
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The move by India, if true, will have other unintended consequences: it will bring down the value of dollar.

If India does decide to pay Iran in gold, the decision will certainly push the price of gold high, especially as vast sums are involved in such transactions, and that would hurt the value of the dollar.

http://www.rediff.com/business/report/india-to-pay-for-irans-oil-in-gold/20120124.htm

Nonsense.  The relative values of the dollar vs. gold is because of the ratio of desire to hold the two assets.  If Iran wanted to hold gold now, they could buy it with dollars.

Some people argue that the primary reason the USD maintains its status as the world reserve currency is because it's the only currency you can use to buy oil.  This sustains the dollar's value even when we just keep printing more and are unable to pay our debts, because the USD acts as a proxy for oil, which everyone needs.  If gold became the new de-facto preferred payment for oil, then the desirability of the dollar world-wide would go way down relative to gold.

But of course India and Iran alone won't cause all this to happen.

Nonsense.  Oil has nothing to do with it.  It takes about a second to convert from any currency to any other currency using FOREX.  Even if the transaction itself takes place in dollars, that doesn't mean that the buyer had dollars the minute before the sale, or that the seller is still holding dollars a minute after the sale.

Gold would add a new wrinkle, but only if physical gold was changing hands at the same time that the physical oil was being (un)loaded.  But most of the "gold" in the world is electronic, in the form of Comex contracts, which are likewise nearly instantly convertible to/from other currencies.

The value of the dollar comes because people want to hold dollars.

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February 01, 2012, 06:48:00 PM
 #10

Nonsense.  Oil has nothing to do with it. 
...
The value of the dollar comes because people want to hold dollars.

They hold USD because they are requested a lot (thus a reliable currency), they are requested a lot, because you need them to buy oil.
That is how the equation around oil and USD works.

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February 01, 2012, 08:10:32 PM
 #11

Nonsense.  Oil has nothing to do with it. 
...
The value of the dollar comes because people want to hold dollars.

They hold USD because they are requested a lot (thus a reliable currency), they are requested a lot, because you need them to buy oil.
That is how the equation around oil and USD works.

The part of my post that you elided describes exactly why you do not need to hold dollars to buy oil, and why you don't have to end up holding dollars if you sell oil.

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February 01, 2012, 08:36:35 PM
 #12

using FOREX

I'm not sure you get the magnitudes here.

EDIT: I just asked a few bankers about this, they all agreed that what you say doesn't make sense, but none could coherently explain why. I'll try a Bitcoin analogy, though I don't really know if this is a proper explanation.

I keep my money in EUR, I'll buy oil today, prices are fixed in BTC. Considering current depth and velocity of the market, let's say 20,000 BTCs worth of oil. I fill the sell orders to a considerable degree, paying more than what I would need to if I kept my earnings as BTC. The seller immediately sells the BTC, getting less than what they would if they kept it in BTC. We both have incentives to use BTC as a reserve currency. Now, you could say that USD market is so huge that a few billion would have a negligible effect, but in return, the reason there are big buyers and sellers is because the price of oil is based on US dollars. If this weren't so, there would be less incentive to use USD as a reserve currency.
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February 01, 2012, 09:21:29 PM
 #13

On the one hand, yes, day-to-day trading is like silk road.  Silk Road users don't care about the value of bitcoins relative to the USD because they buy them quickly and sell them quickly, or vice versa.  It doesn't matter if they spend 10 bitcoins or 20 or 200, it's just a proxy for USD.  Most of the time there won't be enough of a price swing to make a huge difference.

On the other hand, there's a political side if the entire oil producing world rejects the USD in place of Gold or Chinese Yuan.  It's a statement, whether implicit or explicit, that these countries no longer trust the USD, at least relative to the other currencies.  It's a statement that their want has declined.  It's an effective international downgrade of the USD.  I don't see how that scenario wouldn't effect the want or the value of the USD worldwide.  At best it knocks the price down a little bit. At worst, people want gold or Yaun more than USD, changing the world's international reserve currency.

This is of course hypothetical.  I don't think this is particularly likely in the next 6 months or even six years.  But if there was a day where the entire oil producing world announced they would refuse payment in USD, and only accept paytment in X, it would almost certainly affect the value of the USD.
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February 01, 2012, 10:17:30 PM
 #14

The part of my post that you elided describes exactly why you do not need to hold dollars ...
Yes, I did so on purpose. It does not explain what you think it does.
Consider the amount of USD available, it is everything but unlimited! Thus your "proxi" approach does not work.
As USD being relatively rare compared to the amount of oil traded (somewhere 50GigBarrel or so per year) it is getting expensive.
If you don´t get it by now, replace USD with your nose pearls. They will suddenly get very interessting if you could by oil for it, but still very rare (i hope), thus very expensive.

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February 02, 2012, 06:38:56 AM
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The part of my post that you elided describes exactly why you do not need to hold dollars ...
Yes, I did so on purpose. It does not explain what you think it does.
Consider the amount of USD available, it is everything but unlimited! Thus your "proxi" approach does not work.
As USD being relatively rare compared to the amount of oil traded (somewhere 50GigBarrel or so per year) it is getting expensive.
If you don´t get it by now, replace USD with your nose pearls. They will suddenly get very interessting if you could by oil for it, but still very rare (i hope), thus very expensive.

Heh.  Roughly 4 trillion dollars (equivalent) trade on Forex, per day.  50 billion barrels at $100 per barrel is about 5 trillion dollars per year, or less than half of a percent of the Forex volume.

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February 02, 2012, 06:09:22 PM
 #16

Heh.  Roughly 4 trillion dollars (equivalent) trade on Forex, per day. ...
While FED has roughly a bit less than 1 trillion USD handed out.
Compare this to 50Gigs at loosely 100$.

p.s.
Keep in mind how fiat money works, or better how it does not work!

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February 02, 2012, 06:28:02 PM
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Heh.  Roughly 4 trillion dollars (equivalent) trade on Forex, per day. ...
While FED has roughly a bit less than 1 trillion USD handed out.
Compare this to 50Gigs at loosely 100$.

p.s.
Keep in mind how fiat money works, or better how it does not work!

Are you suggesting that oil is only purchased using actual physical paper and metal currency?  The reason I ask is that the New York fed reported $829 billion as the amount of physical currency in circulation.  This is suspiciously close to your "less than 1 trillion USD" figure.

You should look into the different definitions of "money supply", and the different estimates of them.  That is, unless you think that there is a dude driving a forklift with a pallet of cash waiting to meet each tanker as it pulls up to the terminal.

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February 02, 2012, 09:07:16 PM
 #18

I agree, you didn´t get it.

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February 03, 2012, 12:56:16 PM
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Gold would add a new wrinkle, but only if physical gold was changing hands at the same time that the physical oil was being (un)loaded.  But most of the "gold" in the world is electronic, in the form of Comex contracts, which are likewise nearly instantly convertible to/from other currencies.

Do you think Iran would accept comex-gold? I dont.

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February 03, 2012, 01:49:10 PM
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Gold would add a new wrinkle, but only if physical gold was changing hands at the same time that the physical oil was being (un)loaded.  But most of the "gold" in the world is electronic, in the form of Comex contracts, which are likewise nearly instantly convertible to/from other currencies.

Do you think Iran would accept comex-gold? I dont.

If Iran had wanted to hold gold before, they would have bought gold.  If they want to hold gold now, that would represent a shift in their desire to hold dollars vs. their desire to hold gold, and that would be the news, not how the gold is getting there.

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