What if oil weren’t priced in dollars?

Robert Fisk’s report in the Independent that the Persian Gulf countries are planning to stop pricing oil in dollars by 2018 and start using a basket of currencies instead has caused quite the big stir today. Gold hit a new record of $1,043 an ounce as investors worried about the future of the dollar, and the Internets were aflame with the news (especially the right-wing Internets, apparently.) Saudi and Kuwaiti officials immediately said there’s no such move in the offing, 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 basket.

If the Gulf countries stopped pricing oil in dollars, they would also presumably stop pegging their currencies to the dollar, a more significant development. And of course Chinese officials have been making noise for several years about the need to move away from a dollar-dominated world. The problem that both China and the oil exporters have is that they’re holding gigantic stashes of dollars that would suddenly be worth a lot less if they started trying to sell them off. So we’ve got this impasse, where lots of people complain about the dollar’s supremacy but nobody seems willing to do anything about it. In fact, a succession of U.S. Treasury Secretaries has trooped to Beijing trying to persuade the Chinese to do something about the dollar’s supremacy by letting the yuan float or at least rise sharply against the dollar, and met with strong resistance.
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US economic power ‘is declining’

US economic power is declining as a result of the financial crisis, the head of the World Bank has said.

“One of the legacies of this crisis may be a recognition of changed economic power relations,” said World Bank president Robert Zoellick.

The US, the world’s biggest economy, has been in recession for almost two years, while emerging economies like China and Brazil have grown.

This may help bring about a long-term rebalancing of the world economy.
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Global economy expanding says IMF

The global economy is expanding again and financial conditions have improved significantly, the International Monetary Fund (IMF) has said.

But in its latest World Economic Outlook, the IMF said the “pace of recovery is expected to be slow”.

It added that the recovery is likely to be “insufficient to decrease unemployment for quite some time”.

On Wednesday, the IMF cut its forecast for the amount that banks are likely to lose in bad loans and investments.

The total it expects banks to lose between 2007 and 2010 is now $3.4tn (£2.1tn), down from its previous estimate of $4tn.

This reduction is a direct result of the improved outlook for the global economy.
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Hong Kong: The World’s Most Expensive Real Estate?

Home prices in overcrowded Hong Kong have traditionally been high, but when it comes to having the most expensive residential properties in the world, the Chinese metropolis has never seriously challenged cities like New York, London and Tokyo.

Until now. In another demonstration of how the recession is shaking up the global financial order, two luxury Hong Kong apartments have just gone on the market for a stunning $38.7 million each. If the developer, Sun Hung Kai, finds buyers at that price, the three-level penthouse dwellings, perched atop the 93-storey Cullinan towers with sweeping views of Hong Kong’s harbor, could well qualify as the world’s most expensive apartments. More than 4,000 sq. ft. in size, the apartments, which are still under construction, are selling for $9,677 per sq. ft. That’s considerably above the $6,000-per-sq.-ft. price that top-end London flats were fetching in early 2007, when that city was reputed to be the world’s priciest housing market.
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Back from the dead

But the IMF is not quite ready for the future

THE International Monetary Fund has had a good crisis. Two years ago the world’s main international economic institution was heading for irrelevance, its homilies ignored by rich countries, its advice despised in poorer ones and its lending unnecessary in a world flush with private capital. Today the fund is widely hailed as a flexible and innovative crisis-responder. It has committed over $160 billion in a host of new loans and credit lines, up from barely more than $1 billion in 2007. Its lending capacity is being trebled to $750 billion.

This warp-speed revival is the result, in part, of good luck. The sudden slump in private capital flows after the collapse of Lehman Brothers a year ago was calamitous for many emerging economies, but it was a powerful reminder of the importance of an official emergency lender. Good leadership has also played a role. Dominique Strauss-Kahn, the former French finance minister who took the IMF’s helm in November 2007, has shown a boldness and political deftness his predecessors lacked. His Keynesian instincts (he hails from France’s Socialist Party) proved right for the times. His call for a global fiscal stimulus in January 2008, for instance, now seems prescient. He has pushed through reforms that allow the fund to dole out large amounts of money fast, while convincing a broad array of countries, including rising powers like China, India and Brazil, to contribute to its coffers.
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G20 ‘to call for economy balance’

This week’s G20 summit in the US will call for major reforms to promote a more balanced global economy, according to a document seen by the BBC.

A draft paper hints at significant policy changes from G20 countries, including the UK, the US and China.

And while stimulus packages should continue for now, the document called for the creation of “transparent and credible” means to unwind that support.

Leaders will meet in Pittsburgh with the economy high on the agenda.
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Why The World’s Poor Refuse Insurance

There are higher-yielding varieties of groundnut than those that farmers in Malawi tend to plant, but getting them to switch is tough. Better seed is pricey, increasing their risk. So researchers from the World Bank ran an experiment. With local NGOs, they offered the farmers loans. Some loans even came with a crop-insurance policy: if the season was dry and the yield a dud, the debt would be forgiven. The farmers’ risk was lowered. Of farmers offered conventional loans, 33% signed up. With the added incentive of insurance, 18% did. The researchers were puzzled.

It’s been more than 30 years since microfinance began its fantastic rise, spreading billions of dollars in credit to hundreds of millions of overlooked borrowers around the world. Insurance is the next big promise of financial services for the poor.
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Crisis ‘cost us $10,000 each’

The world’s largest economies have spent $10,000 for every person in a bid to fix the financial meltdown of the past year.

New calculations by the BBC, based on IMF data given to G20 finance ministers, shows these countries have spent a total of $10 trillion (£6tn).

The UK and US spent the most, with the UK spending far more, 94% of its GDP compared to 25% in the US.

That equates to $30,000 per person in the UK and $10,000 in the US.

Of course, most of this bail-out money was in the form of guarantees to the banking system, and as that system pulls out of the crisis, governments stand to recover most but not all of that money.

However, there are several other ways to measure the severity of the crisis which has led to the world falling into recession for the first time in 60 years.
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G20 pledges tougher bank action

Finance ministers from the world’s most powerful economies have agreed a series of measures to try to regulate the global banking system.

They want a system that rewards long-term performance rather than short-term risk-taking.

However the G20 meeting in London did not agree on specific limits on the amounts individual bankers get paid.

Britain, the US and Canada opposed the idea, but the Financial Stability Board is to examine the issue.
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Boosting economy to top G20 talks

Finance officials from the Group of 20 richest nations are set to outline a commitment to boosting the global economy when they meet in London later.

While there is expected to be consensus over continuing to spend, there is some friction over the pace of spending and when to scale down stimulus efforts.

And a European proposal to curb bankers’ bonuses may face opposition from the US.

A full G20 meeting takes place in Pittsburgh later this month.

Early exit warnings

The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, has said the G20 must proceed cautiously.
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