Lately I’ve noticed an annoying trend in financial commentary on oil prices.  These articles make it sound as if the movement of oil prices and the strength of the United States dollar (USD) have nothing to do with each other.  For example, the Tuesday Oct. 23 Wall Street Journal has a story on Asian countries that states:  “The recent decline in the value of the U.S. dollar—and parallel rise in the value of some Asian currencies—has also given Asian consumers more power to spend liberally on fuels, because oil is typically priced in dollars and therefore cheaper to buy” (A2, italics added).

It’s that last clause that bothers me.  The story implies that if oil were priced in, say, the Chinese yuan, then Asians would be worse off than they are right now.  But of course that’s not true at all.  On a quick analysis, the switch from pricing oil in USD to yuan would be completely irrelevant; it would just be a swap of the unit of account, and wouldn’t affect real economic magnitudes any more than switching from dollar prices to “quarter prices” or “dime prices” would affect the welfare of U.S. consumers.

The confusion here is that this article (and others like it) apparently ignore the fact that oil prices wouldn’t be climbing so high were they priced in a currency other than the USD.  So yes, when oil prices (measured in USD) are skyrocketing, it helps if your own currency is appreciating against the dollar.  But that doesn’t mean Asians should thank their lucky stars that “oil is typically priced in dollars.”  If oil were priced in their own currencies, then its nominal price would have been far more stable, while American consumers would have felt the pain of “high” oil prices through the erosion of the dollar’s exchange rate.

Of course, in the real world it does make a difference in which currency oil transactions take place.  If everyone switched to pricing oil in euros, for example, then the world demand for USD would fall, and this would on net probably hurt countries like China, whose government has over a trillion dollars in dollar-denominated assets.  But this subtle point isn’t the one being made by articles such as the recent WSJ piece.