AEA Meeting Papers

Globalization affords an interesting example of an evolving social norm: The practice -- now under challenge -- of pricing oil in US dollars. Historians have noted it was "an accident" that oil prices came to be valued in dollars. In fact, it was a social norm that evolved from the larger postwar context from which the global oil trade was born. That social context was overwhelmingly American.

As Europe becomes a bigger player in the world economy, oil now is being priced more and more in euros. There's a debate under way about whether this is good or bad. Either way, pricing oil in euros is an example of a changing social norm. Valued in more than one currency, oil begins to reflect the pluralistic social values of globalization.

The economic question is, did dollar-priced oil in the end violate a rational expectations model? And was it counteracted as a result by globalization's expansionary social effect of pricing commodities in many currencies?