There was a newspaper story today out of London in The Independent that suggested that the always reliable unnamed sources are planning to sell oil in currency other than dollars.
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
This is the lead paragraph, which makes it sound like quite a cabal. The rumor may or may not be true, but rumors like this always get started in an environment where they could be true. The weakness in the dollar will tend to create more belief than if this rumor had appeared when the dollar was strong.
To me, the story simply signifies that the world has changed. It is no longer inconceivable that the dollar could lose its place at the head of the table. (And it may not even be a bad thing—if Washington has to suddenly worry about the dollar, maybe they won’t be so keen to run up huge amounts of deficit spending.) Investment policies need to change too, to incorporate an entirely different global risk-reward tradeoff for U.S.-based investors. Tactical asset allocation might be the most efficient way to address the problem.
Posted by Mike Moody 
