[jyl]

The idea of OPEC states creating a single currency is far fetched. OPEC can't even stick to a oil quota, why do you think they can create and manage a currency?

For the euro to be created, the euro zone countries had to give up control of their monetary policy to a single European Central Bank and commit to uniform government debt limits. You think Mexico wants it's monetary policy decided by Libya, Iran will let Iraq tell it what budget deficit it may run, Venezula will let it's interest rates be determined in Saudi Arabia?

And where will they get the money? The Eurosystem has total reserves of 437BN EUR or 625BN USD. Sure, the richest OPEC countries could contribute this much, but if Saudi Arabia ponies up $500BN it will want to control the currency, and then you're back to who in OPEC wants to be ruled by Saudi Arabia?

Don't forget that the OPEC countries, as a whole, don't have much of an economy beyond oil. So your hypothetical OPEC currency will be backed by oil and nothing else. Which means it's value will tend to rise and fall with the price of oil and the volume of oil transactions. When demand for oil declines, the price of oil already tends to decline, and now it will be exacerbated by the decline in the OPEC currency. So, instead of suffering through a 70% fall in oil price (140 USD to 40 USD) now OPEC gets to suffer, let's say, an additional 30% decline in their misbegotten currency too? For a 79% decline in effective purchasing power? Yeah, that sounds like a good idea. When their USD declines, at least they can buy things from the US and China with no decline in purchasing power.

A last point. Consider the volume of FX trading in the world. Appx 4TR USD per day. Then consider the volume of oil transactions - it is a small fraction of that. This suggests to me that an OPEC currency would be very vulnerable to manipulation, and there'd be plenty of incentives to do so. Not so great to have your national currency being slammed around by FX and energy traders.

This is one of these ideas that sounds intriguing but falls apart when you actually think about it.