[Calxy]

Overnight, a report in the Independent, a British newspaper, that Gulf states were in secret talks with other countries, including Russia, China and Japan, to move oil trading from dollars to a basket of currencies, including the EUR, JPY, CNY, gold and a new, single currency planned for the GCC, pressured the dollar. Little detail was provided about the sources for the report (referred to as "Gulf Arab and Chinese banking sources in Hong Kong"), and the author is a long-standing and well-known Middle East correspondent who has not written often written on economic issues.

The article makes it sound far more imminent than it likely is. In particular, the political consensus needed to achieve this would be very difficult, especially when there is an apparent lack of consensus on more proximate issues for GCC countries, such as the Gulf Monetary Union. Economists expect the 2010 deadline for the single Gulf currrency, which the Independent article suggests will be part of the basket for oil trades, to be postponed.

Nonetheless, the report will likely add to concerns about the role of the dollar in international financial markets, especially in the face of evidence from the IMF's COFER data that EM central banks are more aggressive than they have been in shifting out of the USD into other G10 currencies. There are good reasons to sell the USD, but the Independent report is not one of them.