Comments on: Cevik: the Gulf needs to revalue, and fast http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/ Wed, 07 Jan 2009 21:56:39 +0000 http://wordpress.org/?v=2.6.1 By: Gamma http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95054 Gamma Mon, 26 Feb 2007 07:10:50 +0000 http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95054 Let's ignore for a moment WHY this would happen... and just think about the effects. What happens if the yen craters? Does the dollar get a safe-have bid? Do carry related currencies wreck as everyone rushes to sell them to lock in ultra cheap yen that they sold via carry trades? Any ideas out there? Again... not really concerned with WHY it would happen... let's assume the possiblilty is remote, but that it exists on some minute level. Let’s ignore for a moment WHY this would happen… and just think about the effects. What happens if the yen craters? Does the dollar get a safe-have bid? Do carry related currencies wreck as everyone rushes to sell them to lock in ultra cheap yen that they sold via carry trades? Any ideas out there?

Again… not really concerned with WHY it would happen… let’s assume the possiblilty is remote, but that it exists on some minute level.

]]> By: bsetser http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95053 bsetser Wed, 21 Feb 2007 07:53:07 +0000 http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95053 I don't think there would be much impact on the dollar (or euro) price of oil -- that is a function of demand and supply in the oil market. what would change with a GCC revaluation: a) the countries in the region would have more external purchasing power (with current local currency salaries), so imports of goods and services would go up b) the need to purchase financial assets to hold the XR constant woudl go down c) inflation would be lower than it is now projected to be (with real appreciation coming from the XR not inflation) d) there would in principle be less need to use fiscal policy to sterilize big fx inflows from the oil windfall (but lots of countries haven't really done this -- hence the inflation). I don’t think there would be much impact on the dollar (or euro) price of oil — that is a function of demand and supply in the oil market.

what would change with a GCC revaluation:

a) the countries in the region would have more external purchasing power (with current local currency salaries), so imports of goods and services would go up
b) the need to purchase financial assets to hold the XR constant woudl go down
c) inflation would be lower than it is now projected to be (with real appreciation coming from the XR not inflation)
d) there would in principle be less need to use fiscal policy to sterilize big fx inflows from the oil windfall (but lots of countries haven’t really done this — hence the inflation).

]]> By: OldVet http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95052 OldVet Wed, 21 Feb 2007 04:25:01 +0000 http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95052 guest, Yes, oil prices in dollars would rise. As it is, oil prices in Euros are falling somewhat, and dragging Dollar prices upwards from time to time. It's a sloppy system of pegs made and pegs broken by price changes and output changes. HK, You're right about what they're concerned about at the leadership level, but the leadership level is backward looking and more interested in status quo than forward prospects. "price inflation may not matter much" to the leadership, but there's a seething mass of Arabs who are trying hard to keep up, and with great difficulty. The main benefit to the US would be higher oil prices, which would force genuine economic changes - conservation and replacement of oil. That would loosen the obligations to protect some of the rotten regimes in the Middle East. Egypt can protect the Gulf, if they choose to do so, and if the GCC is willing to pay them instead of the US. I don't frankly care very much how it works out in a region ruled by madmen trying to drag the world back to medieval times. guest, Yes, oil prices in dollars would rise. As it is, oil prices in Euros are falling somewhat, and dragging Dollar prices upwards from time to time. It’s a sloppy system of pegs made and pegs broken by price changes and output changes.

HK, You’re right about what they’re concerned about at the leadership level, but the leadership level is backward looking and more interested in status quo than forward prospects. “price inflation may not matter much” to the leadership, but there’s a seething mass of Arabs who are trying hard to keep up, and with great difficulty.

The main benefit to the US would be higher oil prices, which would force genuine economic changes - conservation and replacement of oil. That would loosen the obligations to protect some of the rotten regimes in the Middle East. Egypt can protect the Gulf, if they choose to do so, and if the GCC is willing to pay them instead of the US. I don’t frankly care very much how it works out in a region ruled by madmen trying to drag the world back to medieval times.

]]> By: Guest http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95051 Guest Wed, 21 Feb 2007 01:21:46 +0000 http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95051 And what would be the effect on the US economy if these countries revalued? Would the dollar price of oil rise? And what would be the effect on the US economy if these countries revalued? Would the dollar price of oil rise?

]]> By: HK http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95050 HK Tue, 20 Feb 2007 18:00:39 +0000 http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95050 Brad--As I argued before, apart from Saudi Arabia, most of Gulf states are small and dominated by the traded sector (oil for exports and most other goods for imports). This means that exchange rate adjustment would have only limited impacts on the economy (except on prices). Therefore, although currency appreciation would be good for reducing price inflation, real estate boom and big current account surplus would not be much affected by it. Even price inflation may not matter much, since most of leaders, poiticians, bureaucrats, business people are more concerned about dollar prices rather than prices in their domestic currency. Brad–As I argued before, apart from Saudi Arabia, most of Gulf states are small and dominated by the traded sector (oil for exports and most other goods for imports). This means that exchange rate adjustment would have only limited impacts on the economy (except on prices). Therefore, although currency appreciation would be good for reducing price inflation, real estate boom and big current account surplus would not be much affected by it. Even price inflation may not matter much, since most of leaders, poiticians, bureaucrats, business people are more concerned about dollar prices rather than prices in their domestic currency.

]]> By: Dave Chiang http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95049 Dave Chiang Tue, 20 Feb 2007 12:04:08 +0000 http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95049 It remains highly unlikely that the Gulf Arab states will move to unravel the US Dollar hegemony regime by breaking the implicit agreement with the United States. With the failed state status of Iraq and the rising Shite influence of Iran, the weak Gulf Arab states are more dependent than ever before on US military power projection in the region for their physical survival. Neither the Russians nor the Chinese have the military-industrial capability and geo-political ambition to replace the US hegemony over the fractured Middle East region. The US broke Iraq, now the US owns Iraq forever. It remains highly unlikely that the Gulf Arab states will move to unravel the US Dollar hegemony regime by breaking the implicit agreement with the United States. With the failed state status of Iraq and the rising Shite influence of Iran, the weak Gulf Arab states are more dependent than ever before on US military power projection in the region for their physical survival. Neither the Russians nor the Chinese have the military-industrial capability and geo-political ambition to replace the US hegemony over the fractured Middle East region. The US broke Iraq, now the US owns Iraq forever.

]]> By: OldVet http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95048 OldVet Tue, 20 Feb 2007 11:17:44 +0000 http://blogs.cfr.org/setser/2007/02/20/cevik-the-gulf-needs-to-revalue-and-fast/#comment-95048 I'm glad the GCC are better using oil funds on infrastructure than simply importing more junk. But they've made a Faustian bargain of militarily guaranteed security (by the US) in exchange for affordable oil prices to the US. Hence the dollar peg. For all of our sakes, so we can all get on with reordering our economies, I wish they would float their currencies. Let the price of oil rise to a non-barter price, and conservation begin. I'll junk my Cadillac for the cause, if need be. I’m glad the GCC are better using oil funds on infrastructure than simply importing more junk. But they’ve made a Faustian bargain of militarily guaranteed security (by the US) in exchange for affordable oil prices to the US. Hence the dollar peg. For all of our sakes, so we can all get on with reordering our economies, I wish they would float their currencies. Let the price of oil rise to a non-barter price, and conservation begin. I’ll junk my Cadillac for the cause, if need be.

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