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Comment by testing22321 | Hacker News Reader

You don’t think the US dollar will take a dive along with US stocks?

If your debts are also denominated in USD, their value will be fixed relative to your cash assets. This assumes a fixed rate, of course, but a 30 year fixed is common in the US and makes up a substantial portion of most folks’ debt.

I have a big chunk in FXE (like owning Euros) precisely for this reason.

What specific thing(s) are you worried that USD will take a dive relative to?

Then once you have an answer to that question, that might point you towards what you want to be long.

How would buying Euros compare in terms of exposure?

The USD could take a dive against: yuan, eu, gbp, rial, gold, silver, platinum, WTI, SPY, etc.

Only a few of them will matter on a day-to-day basis if you're currently in the US with assets valued in USD.

Couldn't you just exchange your EUR for USD as needed? Use it as your reserve currency?

Traders could start buying their oil using Yuan, for example. That’s not a theoretical anymore

What percent of dollars are tied up in in-flight oil transactions? And I suppose also in accounts that will be used for oil transactions in the planned future? That’s the mechanism for that supporting the value of the dollar, right, like, increased dollar demand via being used for oil market transactions?

The point is that the Petrodollar system requires countries to buy US treasuries to be able to buy oil. That is what makes borrowing cheap for the US, and what keeps the dollar demand up.

I'm not clear on how the Petrodollar system actually works.

If oil is sold in dollars, that only has to affect dollar demand for the time it takes to transit through some other currency to dollars to oil. So however long that takes to settle.

Where do the additional demand components come from? Why do countries have to buy US treasuries to be able to buy oil? Don't they just have to use dollars for the transaction?

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