You can only hedge using currency futures for so long. Truly long-term hedging requires rolling futures, and that is risky. In the least traumatic scenario everyone's present holdings are fully hedged and they would let their dollar reserves run out (not completely, it is understood), replacing them with a combination of Euro, Yen and Pound.
Assuming everytone is fully hedged and they convert their reserves smoothly, I'd give it 18 months from the point when Oil is no longer traded solely in USD until the dollar tanks. guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
But the name of the currency of transaction isn't really what's important. I doubt they'd be very happy having to pay 60 euros a barrel, assuming that 60 euros is worth $90 or more. That is a significant price increase.
Which of course would be passed onto the consumer, meaning a 50% or more increase in fuel prices. Something tells me the alarm bells would be ringing.
You still seem to assume that the dollar is special, regardless, that the price of oil would just adjust itself to the falling dollar. According to the economists in this documentary, the price of oil would remain the same for everyone else in the world whose currency does not tank. Americans (and those who still had their dollars) would be, basically, fucked.
I'm sure there's more to it than that but I think your statement ignores the fact that rapid currency devaluations have real world consequences. It's not as if when the Brazilian real went down 75% against the dollar that somehow they could still pay the same amount for stuff. No, suddenly everything got a lot more expensive!
and then you are further suggesting that the oil cartels decide to set their prices in euros.
and then you are suggesting the cost per barrel goes up to 60 euros from 47.43--or a 26% increase from today's prices.
sure, that all could happen. in fact it really already did, except for the oil sheiks deciding to denominate oil in euros. over the last 4 years or so the $1 has fallen from, I think, something like 1.25 euros to .85 today. That is larger than the continued fall to .67 euros that you suggest.
furthermore, wasn't a barrel of oil something like $25 four years ago--whatever, I think it's up 100% ish, quite a bit more than the 26% you suggest.
so Americans have a big increase in oil prices--124%. Europeans have a smaller increase since the euro is stronger against the weaaker dollar. $25 was 31.75 euros, $56 is 47.43 euros, only a 49% increase for Europeans.
So go back to my original post, which was money is fungible. I wasn't saying currencies don't adjjust,,,,they of course do. And that adjustment in fact makes all of the outcomes that you describe happen--not only in your suggested case, but in the last four years. It doesn't require the oil cartels to price in Euro's.
The foremost virue of dollars is that the can buy oil. If the oil producers quit accepting dollars, a key reason for wanting them disappears, and the value has to drop. So finding someone who will accept your dollars and give you euros to buy oil becomes a problem.
A lower price for dollars would be good for American exports, except that we have off-shored most of that, and the increased price of oil to farmers and such industries that have remained offsets the export price advantage.
Meanwhile the main part of American life, based on automobiles and cheap oil to run them, shuts down. Panic and chaos.
That's why the neo-cons are fighting a global war for oil. And that's why, so far, a majority of Americans are letting them do it. The Fates are kind.
