From what I understand, the world’s major commodities, such as oil, wheat, gold, etc., are denominated in USDs. I have a few questions regarding this: 1. Does this imply that purchasing commodities priced with USD is going to get more difficult for Americans? 2. Gas is quite expensive in the USA, when compared to the historical averages. Do foreigners perceive the same gasoline expenses as we, in spite of their currency maintaining its strength? Another words, would a European perceive that gas prices are expensive relative to their averages when denominate in the EUR? 3. Since the “market capitalization” of the Euro is very great, and perhaps slightly greater or lesser than the “market capitalization” of the USD, could international commodities (i.e. oil, gold, etc.) ever be priced in the EUR? 4. Finally, from what I understand, because the USD is the benchmark currency for commodity pricing, I heard that we’re able to get a good deal on these commodities. Is this true, and if so, what kind of “discounts” are we getting?
- Does this imply that purchasing commodities priced with USD is going to get more difficult for Americans? Yes 2. Gas is quite expensive in the USA, when compared to the historical averages. Do foreigners perceive the same gasoline expenses as we, in spite of their currency maintaining its strength? Another words, would a European perceive that gas prices are expensive relative to their averages when denominate in the EUR? Not necessarily: 1) Americans are hit very badly because their gas bill is 90% gas. I.e. if gas price goes up by 50%, the price Americans pay will go up by 45%. Europeans’ gas bill is 20% gas and 80% taxes, taxes are fixed for the most part, so when the gas price goes up by 50%, the price Europeans pay will go up by 10%. (just think about a 100 bill, part of which is fixed (taxes), and part of which is variable (gas) 2) The change in exchange rates between the euro and the dollar also cause the US gas bill to be larger (their currency is depreciating => imported good’s price increase), and the European gas bill to be smaller (their currency is appreciating => imported good’s price decrease) 3. Since the “market capitalization” of the Euro is very great, and perhaps slightly greater or lesser than the “market capitalization” of the USD, could international commodities (i.e. oil, gold, etc.) ever be priced in the EUR? That could be a factor, athough it would be simplistic see a direct relationship there. That would be a big move, and that’s not gonna happen easily. 4. Finally, from what I understand, because the USD is the benchmark currency for commodity pricing, I heard that we’re able to get a good deal on these commodities. Is this true, and if so, what kind of “discounts” are we getting? {Confused}
So do the Europeans perceive that gas prices are rising beyond their historical averages (adj. for inflation)? Probably not, because their currency is maintaining its purchasing power, so they probably don’t think that gas prices are up/down. We do, because the USD buys less than it did a few years ago.
It is my understanding that gas prices do increase in Europe, because oil price increase has outpaced USD depreciation. The gas prices increase in Europe is however much smaller than the one that can be observed in America, (for the reason mentionned as well as due to the impact of taxes). You can also keep in mind that gas prices have histrocally been significantly greater in Europe than in America, so we’re only speaking about a percentage increase.