>But, I am somewhat unclear on oil pricing in dollars. Do the major
>producers ONLY accept US dollars in payment? I know the Saudis cut a deal
>with Kissinger regarding this, but how does it work in practice. Must oil
>be paid for in dollars and what prevents oil producers from taking other
>currencies?
Nothing at all. The pricing of oil in dollars is just one of those things that help make up US dollar hegemony in the world system. The US dollar is also the "vehicle" currency for exchanging thinly traded currencies - if you want to change, for example, Australian dollars into Thai baht, you (or your bank) may change the A$ into US$ first, because the markets involving dollars are so much deeper & more liquid. Of course, the fundamental reason behind this is US economic and political power; dollar dominance helps construct that power, but the power is the support for the currency dominance. So, as US relative power declines, the centrality of the dollar is declining - and now that the euro represents an increasingly credible alternative, that decline will probably accelerate.
Dollar hegemony does confer some advantages on the US. We're much more insulated from the effects of currency swings than other countries; the dollar's decline in recent years hasn't fed through very much to higher domestic prices (though that's changing). And the dollar's status as the world's leading reserve currency means foreign central banks buy a lot more Treasury paper than they would on economic judgments alone (though that's changing too). Were OPEC to shift pricing from dollars to euros or a mix of currencies, that would remove some of the insulation, but the principal effect would be psycho-political: a sign of US economic decline that the current gang in power would be ill-equipped to understand or handle.
Doug