On Wednesday, February 12, 2003, at 11:14 AM, Wei Dai wrote:

On Tue, Feb 11, 2003 at 10:34:40PM -0500, William Dickens wrote:
Should OPEC set oil prices in Euros and hold their cash reserves in
Euros what would be the real consequences for the US? 1. A tiny increase
in risk wrt oil prices (we know its tiny because the cost of currency
hedging is minimal). 2. A tiny loss of income for the Fed from being
able to print cash and create reserves as cash is repatriated and
foreign banks accounts in dollars are reduced. 3. Some tendency for the
dollar to depreciate which can be completely offset by slower money
growth (this and 2 are really the same thing). Perhaps slightly more
foreign exchange risk for companies doing business with countries that
cease to peg to the dollar.
Is it possible for another government to manipulate the US dollar in
a way that the Fed can't effectively counteract? OPEC switching to Euros
may not do it, but is it vulnerable in general? Have there been cases in
the past where countries tried to destablize the currency of others
on purpose?

I seem to remember that once Japan boycotted treasury bonds for one day, and it caused quite a stir. It wasn't really to manipulate our economy, but to show that they could to get leverage in some trade negotiation.

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