There is no justification for the oil producer's cartel to raise prices on the excuse that the dollar has depreciated in value over the past year, Treasury Under Secretary for Monetary Affairs Anthony Solomon said yesterday.
In a speech to a meeting sponsored by the Washington Journalism Center, Solomon was critical of the press for repeating such "simplistic nonsense." The fact is, Solomon said, that "no matter how you calculate it, the value of the dollar has increased in the past year."
He suggested that the most meaningful calculation of the value of the dollar for the Organization of Petroleum Exporting Countries is against a weighted basket of currencies needed by OPEC for the goods and services they import. On that basis, Solomon said, "the value of the dollar is 10 percent higher than it was a year ago."
In recent weeks, several OPEC countries have again raised the possibility that they might prefer to price oil in Special Drawing Rights -- the international credit issued by the International Monetary Fund -- rather than the dollar. But the dollar has also risen, by 3 to 4 percent, against SDRs, Solomon said.
"But they keep talking about this (shift to SDRs) to each other and to the press, and everybody seems to believe it. I guess if the lie is big enough, people believe it," Solomon said.
U.S. officials have consistently argued that a shift in oil pricing from dollars to SDRs, or to some other "basket" of currencies, would have only minimal and psychological effect on the dollar, because actual payment for oil would still have to be made in actual currency, probably dollars.
A more serious question than how oil is priced relates to investment. An OPEC effort to pull dollars out of U.S. investments, if successful, could have a depressing effect in money markets.
Solomon said the bulk of oil payments to Iran is still in dollars. "There have been many inconsistent statements out of Iran on this," Solomon said. "There's a gap between their statements and reality. I don't mean that they probably wouldn't like to reach a situation in which they were being paid in some other currencies, but I doubt if they could carry out that policy."
For the longer run, Solomon said that the U.S. hopes that the SDRs will assume part of the burden the dollar now bears as the world's reserve currency. A first and modest step in this direction would be the adoption of a "Substitution Account," proposed last October at the IMF Annual Meeting in Belgrade.
The Substitution Account would provide a way for government holding excess dollars to trade them into the IMF for a special SDR-denominated interest-bearing certificate.
The SDRs would initially be used only by governments as a reserve asset, as is presently the case. But eventually, they might be used by the private sector, like any other currency.
The gradual introduction of the SDR as a partial replacement for the dollar as a reserve currency, he said, is much to be preferred to the use of other national currencies, such as the German mark and Japanese yen, along with the dollar in a multiple reserve currency system.