http://www.arabnews.com/?page=7§ion=0&article=82606&d=23&m=5&y=2006&pix=opinion.jpg&category=Opinion
Tuesday, 23, May, 2006 (25, Rabi` al-Thani, 1427)
How Much Longer Can the Dollar Reign Supreme?
Linda Heard, [EMAIL PROTECTED]
Saddam Hussein stopped trading his oil for dollars before Iraq was
invaded. Iran gets set to open a new oil bourse and futures market that will
trade in euros, while Venezuela is said to be mulling over whether to follow
suit.
Now Russia has joined the bandwagon. On May 10, President Vladimir Putin
announced the creation of a Russian oil and gas bourse along with his intention
to convert the ruble into a convertible currency that would be used for the
trade.
Russia has recently swapped some of its dollar reserves for euros.
Together Iran, Venezuela and Russia corner some 25 percent of the export
market in oil. If the three countries do away with the petrodollar, this could
seriously buffet the US currency, forcing up interest rates, increasing the
cost of imports into the US and contributing to an inflationary economy or a
recession.
William Clark writing in the Energy Bulleting says, "What we are
witnessing is a battle for oil currency supremacy. If Iran's oil bourse becomes
a successful alternative for international oil trades, it would challenge the
hegemony currently enjoyed by the financial centers in both London (IPE) and
New York (NYMEX)..."
At the same time, nations in this region have been exchanging percentages
of their dollar reserves for other currencies.
In March, following the Dubai Ports World debacle, the UAE Central Bank
said it was considering converting 10 percent of its dollar reserves to euros.
Kuwait and Qatar have hinted that they might do the same.
The Commercial Bank of Syria has exchanged all its dollar devise for
euros following a call from Washington urging US banks to cease acting as
correspondents for Syrian financial institutions, ostensibly because of
money-laundering concerns.
Last month, Sweden cut the dollar share of its $21 billion foreign
reserves from 37 percent down to 20 percent, causing the dollar to tumble
almost two percent in one week.
Sweden's central bank said the switch to Euros was an effort to stabilize
its foreign currency reserves and reduce volatile currencies.
Iran, Venezuela and Russia are hardly on warm terms with the US
government and their proposed flight from dollars is thought to be partially if
not wholly politically motivated. However, if the dollar value plunges as a
result, then central banks around the world will be left with devalued
reserves, and may have to start switching as well.
According to David Smith, economic editor for the Times, much of the
dollar plunge is further "prompted by America's $800 billion current-account
deficit". This deficit isn't surprising when a whopping $280 billion has gone
to fund the war in Iraq and the Bush administration is bent on its policy of
tax cuts, which mostly benefit mega corporations and the wealthy.
Gulf nations, in particular the UAE and Qatar, are said to be suffering
inflationary pressures due to the weakened dollar and there is discussion as to
whether the dirham and the riyal should be released from their longtime hinge
to the greenback.
Some economists are making the case for Gulf currencies to be linked to a
basket of foreign currencies instead.
In May, Kuwait revalued its dollar-pegged dinar up one percent. According
to the Kuwaiti finance minister, the revaluation was meant to offset the impact
of the dollar's slide on investments and inflation.
An article posted on the Emirates Bank website penned by its general
manager believes there is a more important question up for discussion than the
pegging of GCC currencies.
"A more important question therefore, may be whether oil exports should
continue to be denominated in US dollars," he writes. "This might well be
something that OPEC or OEAPC can consider as to the pros and cons but is a
matter that is best decided by a dialogue between the importers of oil and the
exporters."
Washington's erratic and aggressive foreign policies have also
contributed to the rise in oil prices. In the event of a military strike on
Iran or attempts to interfere in the internal affairs of Venezuela, oil could
top the $100 dollar mark with severe repercussions on the US and other first
world economies.
Indeed, Iran's President Mahmoud Ahmadinejad has threatened to stop the
flow of oil through the Straits of Hormuz, while Venezuelan leader Hugo Chavez
says he will quit selling oil to the US if threatened with invasion.
As we know when Washington sneezes the rest of the world catches a cold
and this is certainly true when related to the weakness of the US currency.
Last week London Blue Chips dived on news of the dollar's dive coupled with
concerns about inflation, while Asian stocks also felt the pinch.
Washington seems unconcerned and is sending out confusing signals. For
instance, Beijing was badgered to unpeg the yuan from the dollar, and to
revalue the currency so as to give US exports a competitive pricing edge, but
since, US Treasury Secretary John Snow has stated that a strong dollar is in
the nation's interests.
In the meantime, China is buying up Washington's debt in the form of
T-bills; some $200 billion worth.
If Beijing decided to dump US T-bills perhaps in response to a row over
Iran, or more likely Taiwan, the US could find itself in trouble.
The question is how far will the dollar dive? If it ever goes into
freefall, we may be all in for a bumpy ride ahead.
[Non-text portions of this message have been removed]
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