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Talk of break in dollar-oil link unfounded: France

A salesman displays a tray of gold bangles at a jewelry shop in Singapore yesterday. Gold hit a record high on the spot and futures markets yesterday. The precious metal has been driven higher in part by concerns that the dollar is losing favor, including potentially as the currency for settling oil trades. PHOTO: REUTERS

Talk that several countries including France are trying to organize a break in the dollar pricing of oil is unfounded speculation, the French economy ministry said yesterday.

The report, which originated in the British newspaper the Independent, was “pure speculation,” the ministry said. “There is no basis behind these rumors.”

The report had been a factor in depressing the dollar and pushing the price of gold to a record high point on Tuesday, traders said.

The Independent reported that Gulf states, together with China, Russia, Japan and France, were considering replacing the dollar as the pricing currency for oil by a so-called basket of currencies.

This would include the yen, the yuan, the euro, gold and a future common currency in the Gulf region.

The report was denied on Tuesday by Qatar, Kuwait and Russia.

Countries which import oil are in general benefiting at the moment because the dollar is weak. The reverse of this is that weakness of the dollar can weaken the buying power of earnings by oil exporting countries.

Many other raw materials are also traded mainly in dollars.

However, some countries in Asia and the Middle East have official arrangements which link their currencies to some extent to the dollar.

In a broader context, the long-term role of the dollar has been put in question by the global financial crisis, and China and Russia in particular have argued for change.

Many economists argue that one of the main causes of the crisis was a long-term build up of global imbalances in savings and export earnings.

Financial markets had increasing difficultly in absorbing these imbalances, partly because of such management of exchange rates, they hold.

At the annual meetings of the IMF and World Bank in Istanbul on Tuesday, the UN called for a new global reserve currency to end the “privilege” of dollar supremacy.
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