We Have the Euro, Why Not the Opec?

The US Dollar is currently the world's reserve currency because Opec insists on receiving dollars for the oil it sells. This has artificially propped up the value of the dollar because all other countries have to buy dollars to purchase oil.

Those countries which have positive oil reserves, like Norway, or now Brazil that lives on ethanol and doesn't import oil, tend to have stable economies with solid reserves and a valuable currency, while those who are energy importers must rely on manufacturing to create dollar reserves to stay financially strong, like China. And America finds itself constantly losing jobs to foreign countries because its currency is propped up by the scarcity and value of oil itself, so we are in a depression, so now the Federal Reserve is creating more dollars and loaning them out at super low interest rates to get jobs going back in our country again.

But recently China, and now the entire G20, has expressed worry about the dollar's value in the future because the Federal Reserve has increased the amount of dollars in the world by $15 Trillion made out of thin air during the past year. The whole world worries their dollar savings, all the T Bills owned by China for example, will deteriorate in value to less than half its current purchasing power, because the Fed is creating so much new currency. Even Opec now complains that the price of oil should be kept at $100 a barrel, a new "fair" value.

As a result, the G20 is calling for a super currency, a basket of currencies that would become the new reserve currency. But unless that currency is backed by something of value, as the dollar now is essentially backed by oil, no one will feel that currency has any value.

So I propose that the new super currency to be created be called the Opec, and that it be valued at the level of 100 Opecs equals one barrel of sweet light crude oil on the dock of an Opec country, ready to ship.

Why not ask Opec to create that currency thus replacing the dollar as the world's reserve currency? The Opec could be created in the same manner the Euro was created.

But because the Opec would be backed, essentially, by the sum total of all the oil left in the world, it would become similar to a gold backed currency because there is something real that it equates to, i.e. 100 Opecs equals one barrel of oil. And, if you think about it, what this currency really is, is a money based on therms of energy, (more later on that).

Everyone in the world would know that the Opec will have value in the future, because oil is getting more and more scarce. As oil becomes more scarce, other countries buying the Opec would find that they have to pay more of their own currency to acquire the Opec. The exchange rate would be set by the market, and initially the Opec would probably be equal to the US Dollar thus giving Opec their $100 barrel an oil number to start.

But what if the Federal Reserve creates another $15 trillion out of thin air when they should only really be increasing the supply of dollars by the percentage growth rate of the US Economy? Well, in all likelihood, the Opec would trade to $2 or even $3.

The only way for more Opecs to be created would be for more oil, or its equivalent, more energy, to be discovered. Which brings us to the fact that the Opec would essentially be a currency equivalent to the cost of energy. And my argument is that with an energy backed currency, we would be halfway between a precious metal backed currency, (awkward) and a paper currency backed by nothing, (dangerous) and this would be a very good thing.

Why is gold backed currency awkward? For years, peopled argued against gold backed currencies, because it seemed a silly waste of people's time to go dig up a scarce metal from the ground for the sole reason that everyone knew gold was hard to find so therefore they all agreed it had value and they would go to work today for a piece of it, then put it under their mattress and sleep well at night, knowing that in the middle of next winter it could buy them food or water or a lump of coal. Go figure, you'd think people would only work for food or water or coal, but those are hard to store and carry around to buy stuff, hence the need for money, gold, and hence the need for paper money which is light, cash, and hence the development of the entire banking system, electrons created out of thin air and only as valuable as you trust the keeper of the bank, (I don't).

But back to gold, why go to all that effort? Why not have all those skilled miners doing something of value? That is a good question, and it is a good argument against gold, but what I propose is, we actually value our money on something that is being dug out of the ground which we all agree does have value? Oil!

With an oil backed currency, everyone could feel safe knowing they have Opecs in their bank account that can be exchanged for a barrel of oil two or five or twenty years from now, well, until the world runs out of oil.

And in the meantime, we could progress in our development of alternative energy, so that in the future we could have a currency based on a therm of energy, so that when a person did some work and got paid, they would know that all the energy producers of the world would give them one therm of energy in exchange for the therm unit of currency, maybe if solar catches on, the unit of currency in the future will be the Sol.

I like the Sol, in one sense it's endlessly abundant, but humans can't do anything with it now except farm or sunburn. But converted by solar panels it becomes a therm of energy, something we all recognize as being of value, and something easily measured, and therefore a unit of exchange, which is all money really is, a unit of exchange that everyone agrees on.

But because solar power is not here yet and we need to learn to walk before running, and since we can all agree that during the next twenty years oil is going to be pretty valuable, why not create the Opec?

Could more Opecs be created, by a scientific breakthrough that made energy half as expensive, like a solar breakthrough? Yes, absolutely, but wouldn't that be preferable to the Federal Reserve instantly creating nearly $15 Trillion out of thin air this year alone?

In fact it would be far preferable, because for the Opec to lose value, energy would have to get cheaper, which would mean in essence that our technology was making it cheaper for everyone to live, meaning, prices would drop as technology improved, just as the price of computers has constantly dropped as discoveries have been made in computing. And I haven't seen anyone complain about that.

The Opec. A good idea if I say so myself.