The Decline of the Dollar?

Last week, chrisale at Murky Views put together a pair of posts which pointed out two interesting data points: Iran is preparing to denominate its oil sales in Euros, and so is Russia.

Personally, I'm unconvinced that this will have a direct effect on the power of the dollar. Paul Krugman wrote a column in 2003 arguing that the real effects from even a worldwide shift would be minor at best. What I think the real point of concern here is that these two (small, very small) changes might act as a catalyst for the wider market to start moving away from the dollar en masse.

There is one important direct effect to point out, though. It's a bit obvious, but worth mentioning anyway. If oil were priced in euros, the US consumer would no longer be insulated from changes in the value of the dollar (though now the Europeans would be.) If the global oil trade moved away from greenbacks, and the value of the dollar decline dramatically (whether it was directly caused or not) the US price of oil would go through the roof.

Oh, and gold hit a 20-year high yesterday.