At current prices we can estimate the rough annual dollar value of global oil consumption. Rounding things off:
80 million barrels/day $50/barrel 365 days/year
I believe this comes to $1.46 trillion/year, more than twice the annual U.S. balance of payments deficit. Intuitively, that seems to be a hefty counterweight to the steadily expanding deficit. If we imagine any substantial part of these sales occurring in another currency, wouldn't that take away an important prop, and make the whole system of seignorage much more difficult to maintain?
The issue then is whether the benefits of seignorage are small. I am prepared to defer to those who have studied this quantitatively. But if we look at what is happening now, seignorage seems to be an important part of what allows the U.S. to get away with running huge trade deficits, while it avoids rising interests rates, higher housing costs, budget cuts, etc. -- i.e., a general decline in the U.S. standard of living. Dollar supremacy seems to be a way of lavishing resources on military power without sacrificing a comparable amount of non-military consumption.
But let's assume Henwood's point that whatever financial benefit the U.S. reaps is more than offset by the expense of protecting it. That would imply that the projection of U.S. military power in the Middle East has additional motives, which it does -- e..g, the profits that are reaped by oil industry contracts and other infrastructure development contracts. But I don't think it implies that dollar supremacy cannot be one important motive.
At 09:42 AM 2/26/2005, you wrote:
Daniel Davies wrote:
So the USA in this world is only earning seignorage on one day's float. The amounts of money that any reasonable estimate of the size of this float might be worth, is just an order of magnitude smaller than the amounts of money that the USA is alleged to have spent protecting it.
The estimates I've seen of the benefits of seignorage to the US are quite small. For example, here's an excerpt from a 1999 talk <http://minneapolisfed.org/pubs/region/99-06/meyer.cfm> by Lawrence Meyer:
On the other hand, having an international currency can provide substantial benefits. The most direct benefit is seignorage revenue. With about $300 billion of U.S. currency notes in the hands of foreigners, the United States earns roughly $15 billion per year (less than 0.2 percent of GDP) in seignorage.
Doug
