What if they stopped pricing oil in dollars and nobody cared?

This whole post seems to be written by someone somewhat unfamiliar with international finance as well as the the developing markets. I was pretty suspicious of this article until the end. When you said "heck, maybe the rupee", it was confirmed that you have a very weak grasp on this subject. The growth rates between China and India are very different and the human capital potential between those two countries varies significantly. China has a chance to become a major reserve currency in the future, but the rupee is has f-ing no chance.

The whole premise of this blog posting is really screwed up. You say "and nobody cared?" in the title, but then you say that all these changes are putting downward pressure on the US dollar. That's the whole point. The US dollar has extra value because of its use as the world's reserve currency and its the reserve currency in part because of its use by the oil producing countries. This allowed for it to maintain unsound financial practices longer than it would have and not that this is changing it means that the US won't be able to run a long-term deficit as it has without suffering significant inflation (cause by currency revaluations.)

"Replacing the dollar with a currency basket would smooth the volatility, but it would also mean that oil would henceforth be priced in a unit with which hardly anyone was familiar."

Quoting this probably also says that the author himself is unfamiliar with the 'basket' concept. Usually when a measure is derived from several sources, you will end up with an index. E.g. inflation rate is the rate of change of (usually) the Consumer Price Index, which as the name says, an index.

Thus if such a design is implemented, measuring oil 'price' is just as simple as measuring inflation. Retailers and local authorities could easily multiply the current index/price by the base price and publish such a final price making it just as comprehensible as would before, if they ever find an index hard to comprehend.

Finally, what's wrong with smoothing volatility? In my opinion that could be a huge gain.

"Finally, what's wrong with smoothing volatility? In my opinion that could be a huge gain."

Err the basket price would be smoothed, but translated to what you paid for the oil in (dollars, euros or himalayan yaks), it would still be volatile as you would need to either pay in a basket (necessating you converting some of your dollars to eurors at current fx rates) OR you would then have to get your basket price converted to dollars (using current FX rates)....reduction in volatility to nominal price, but no reduction in volatility to your pocket.

Clearly this writer has no clue about economics this post is almost as bad as Denish D'Sousa writing about Soren Kierkegaard in his latest book.

I knew the state of journalism was bad but I didn't this it was this bad.

"Err the basket price would be smoothed, but translated to what you paid for the oil in (dollars, euros or himalayan yaks), it would still be volatile as you would need to either pay in a basket (necessating you converting some of your dollars to eurors at current fx rates) OR you would then have to get your basket price converted to dollars (using current FX rates)....reduction in volatility to nominal price, but no reduction in volatility to your pocket."

You have it correct, but I suppose we can't tell either there will be a net reduction or increase in volatility. Without the basket, it's your currency against USD. With the basket, it's your currency against the basket of currencies. Diversification decreases volatility, so long as your correlation coefficient is not +1 (perfectly positive) against the basket.

Correction: so long as your correlation coefficient with respect to the basket is lower than the correlation coefficient with respect to USD. Of course this will vary from country to country but I also suppose this idea of such a policy is to reduce such a correlation.

jncc1701, I won't put up with people insulting (or misspelling) Dinesh D'Souza in these comments! He gave me one of the great quotes of my early journalistic career (about his protege and ex-girlfriend, Laura Ingraham). Now I've just got to go home and see if I can find it.

Attacking Justin will do nothing to make the price of oil stabilize. Currency speculation is silly anyway. If you are rich, you are rich. If you are poor, you are poor. The more money you have, the better. The less money you have, the worse off you are. Focus on getting as much money as you can. Nothing in life matters.

[...] but it's obviously something they've been thinking about. Just under two years ago there was a big flurry of discussion on the subject, including an OPEC vote to study switching to a currency [...]