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Economics/“Petrodollars”

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Question
QUESTION: Dear Pallas21,
How important is for the US that the oil is sold in US dollars all around the world? Why?
Thank you,
Leonardo

ANSWER: The US Dollar is a hard currency and it is a convention mostly that it is used to express prices such as the one of the oil barrel.  It acts as a numeraire.  You may want to read on Walras and the need for a numeraire.  Good luck.

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QUESTION: May you please provide a brief summary on Walras’ need for a numeraire?
This is not homework.
Please do not refer me to Google or to a text book.

ANSWER: Will be happy to provide you with a link to the model:http://cws.cengage.co.uk/himmelweit/ch18.pdf
It boils down to finding a numeraire which is used to express the value of goods and services, facilitating the trade. Thus a goat may be the equivalent of x units of this numeraire, which in modern days is money. Good luck. You have a long way to go.

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QUESTION: Why is the US Dollar used to express prices such as the one of the oil barrel and not any other currency? Why the US dollar was chosen to act as a numeraire and not any other currency?

Answer
It is a convention.  The US Dollar has been the currency of reference since WWII due to the strength of the economy and the fact it is a hard currency, previously convertible into gold, and subject to fewer fluctuations than other currencies.  Before that the Pound Sterling was widely used.  

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Pallas21

Expertise

I will be happy to answer questions related to applied economics. i.e. economics applied to small businesses and on our day to day existence.

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over 25 years of experience in economics, both as an academic and in the field.

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Masters in Economics, Masters in Public Administration

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