7 Countries Considering Abandoning the US Dollar (and what it means)
November 6th, 2007It’s no secret that the dollar is on a downward spiral. Its value is dropping, and the Fed isn’t doing a whole lot to change that. As a result, a number of countries are considering a shift away from the dollar to preserve their assets. These are seven of the countries currently considering a move from the dollar, and how they’ll have an effect on its value and the US economy
Saudi Arabia: The Telegraph reports http://www.telegraph.co.uk/money/main.jhtml;jsessionid=BYRFMD0QYRQTVQFIQMFSFF4AVCBQ0IV0?xml=/money/2007/09/19/bcnsaudi119.xml that for the first time, Saudi Arabia has refused to cut interest rates along with the US Federal Reserve. This is seen as a signal that a break from the dollar currency peg is imminent. The kingdom is taking “appropriate measures” to protect itself from letting the dollar cause problems for their own economy. They’re concerned about the threat of inflation and don’t want to deal with “recessionary conditions” in the US. Hans Redeker of BNP Paribas believeshttp://www.telegraph.co.uk/money/main.jhtml;jsessionid=BYRFMD0QYRQTVQFIQMFSFF4AVCBQ0IV0?xml=/money/2007/09/19/bcnsaudi119.xml this creates a “very dangerous situation for the dollar,” as Saudi Arabia alone has management of $800 billion. Experts fear that a break from the dollar in Saudi Arabia could set off a “stampede” from the dollar in the Middle East, a region that manages $3,500 billion.
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[li]South Korea: In 2005, Korea announced http://www.washingtonpost.com/wp-dyn/articles/A45703-2005Feb22.html its intention to shift its investments to currencies of countries other than the US. Although they’re simply making plans to diversify for the future, that doesn’t mean a large dollar drop isn’t in the works. There are whispers http://www.bloomberg.com/apps/news?pid=20601087&sid=aR5NGOMkBJ9M&refer=home that the Bank of Korea is planning on selling $1 billion US bonds in the near future, after a $100 million sale this past August. China: After already dropping the http://news.bbc.co.uk/2/hi/business/4703477.stm in 2005, China has more trouble up its sleeve. Currently, China is threatening http://www.telegraph.co.uk/money/main.jhtml;jsessionid=GJCLXDYE1U4SNQFIQMFSFF4AVCBQ0IV0?xml=/money/2007/08/07/bcnchina107a.xml a “nuclear option” of huge dollar liquidation in response to possible trade sanctions intended to force a yuan revaluation. Although China “doesn’t want any undesirable phenomenon in the global financial order,” their large sum of US dollars does serve as a “bargaining chip.” As we’ve noted in the past http://www.currencytrading.net/2007/how-china-could-crash-the-us-dollar-on-a-whim/ , China has the power to take the wind out of the dollar.[/li][li]Venezuela: Venezuela holds little loyalty to the dollar. In fact, they’ve shown overt disapproval, choosing to establish barter deals http://www.feasta.org/documents/papers/oil1.htm for oil. These barter deals, established under Hugo Chavez, allow Venezuela to trade oil with 12 Latin American countries and Cuba without using the dollar, shorting the US its usual subsidy. Chavez is not shy about this decision, and has publicly encouraged others to adopt similar arrangements. In 2000, Chavez recommended http://www.feasta.org/documents/papers/oil1.htm to OPEC that they “take advantage of high-tech electronic barter and bi-lateral exchanges of its oil with its developing country customers,” or in other words, stop using the dollar, or even the euro, for oil transactions. In September, Chavez instructed http://www.bloomberg.com/apps/news?pid=20601086&refer=latin_america&sid=aGBuWpZJ9cPI Venezuela’s state oil company Petroleos de Venezuela SA to change its dollar investments to euros and other currencies in order to mitigate risk.[/li][li]Sudan: Sudan is, once again, planning http://www.sudantribune.com/spip.php?article23958 to convert its dollar holdings to the euro and other currencies. Additionally, they’ve recommended to commercial banks, government departments, and private businesses to do the same. In 1997, the Central Bank of Sudan made a similar recommendation in reaction to US sactions from former President Clinton, but the implementation failed. This time around, 31 Sudanese companies have become subject to sanctions, preventing them from doing trade or financial transactions with the US. Officially, the sanctions are reported[/SIZE] http://www.sudantribune.com/spip.php?article23958to have little effect, but there are indications that the economy is suffering due to these restrictions. A decision to move Sudan away from the dollar is intended to allow the country to work around these sanctions as well as any implemented in the future. However, a Khartoum committee recently concluded http://www.sudantribune.com/spip.php?article23958 that proposals for a reduced dependence on the dollar are “not feasible.” Regardless, it is clear that Sudan’s intent is to attempt a break from the dollar in the future.[/li][li]Iran: Iran is perhaps the most likely candidate for an imminent abandonment of the dollar. Recently, Iran requested http://www.bloomberg.com/apps/news?pid=20601086&refer=latin_america&sid=aGBuWpZJ9cPI that its shipments to Japan be traded for yen instead of dollars. Further, Iran has plans in the works to create an open commodity exchangehttp://en.wikipedia.org/wiki/Iranian_Oil_Bourse called the Iran Oil Bourse. This exchange would make it possible to trade oil and gas in non-dollar currencies, the euro in particular. Athough the oil bourse has missed at least three of its announced opening dates, it serves to make clear Iran’s intentions for the dollar. As of October 2007, Iran receives non-dollar currencies for 85% of its oil exports, and has plans to move the remaining 15% to currencies like the United Arab Emirates dirham.[/li][li]Russia: Iran is not alone in its desire to establish an alternative to trading oil and other commodities in dollars. In 2006, Russian President Vladmir Putin expressed interesthttp://news.goldseek.com/GoldForecaster/1147791900.php in establishing a Russian stock exchange which would allow “oil, gas, and other goods to be paid for in Roubles.” Russia’s intentions are no secret–in the past, they’ve made it clear that they’re wary of holding too many dollar reserves. In 2004, Russian central bank First Deputy Chairmain Alexei Ulyukayev remarked http://www.businessweek.com/magazine/content/04_49/b3911032_mz011.htm , “Most of our reserves are in dollars, and that’s a cause for concern.” He went on to explain that, after considering the dollar’s rate against the euro, Russia is “discussing the possibility of changing the reserve structure.” Then in 2005, Russia put an end to its dollar peg, opting instead to move towards a euro alignment. They’ve discussed http://www.ft.com/cms/s/0/cb1cd3e0-771b-11d9-b897-00000e2511c8.html?nclick_check=1 pricing oil in euros, a move that could provide a large shift away from the dollar and towards the euro, as Russia is the world’s second-largest oil exporter. What does this all mean?[/li][li]Countries are growing weary of losing money on the falling dollar. Many of them want to protect their financial interests, and a number of them want to end the US oversight that comes with using the dollar. Although it’s not clear how many of these countries will actually follow through on an abandonment of the dollar, it is clear that its status as a world currency is in trouble.[/li][*]Obviously, an abandonment of the dollar is bad news for the currency. Simply put, as demand lessens, its value drops. Additionally, the revenue generated from the use of the dollar will be sorely missed if it’s lost. The dollar’s status as a cheaply-produced US export is a vital part of our economy. Losing this status could rock the financial lives of both Americans and the worldwide economy.[/ol]All this is the result of foriegn policies of the Bush Administration…a legacy that Bush will be remembered for…lots of material for the Bush Library.
Re: Dollar Got Bush Wacked :D
There has been an effort to establish dollar hegemony since WW2. Why is the currency hegemony so lucerative? Because it allows a government to print a lot more money, export its inflation, demoninate its foreign debt in its own currency and pay interest thereon by printing even more money, and keep cost of living low by printing money to import real goods and services.
Vietnam war drained the US and depleted its gold reserves as foreign central banks kept trading in dollars for gold -- dollar was then tied to gold -- causing Nixon to break off dollars tie to gold, which would have caused dollar to nearly collapse -- I say nearly because the US still had its manufacturing base then -- except for a scheme that would peg dollar to oil in 1972-3. Energy is so vital that as long as energy is traded in dollars, so would all else.
Thence came a concept of floating currencies that floated around the de facto currency of almighty dollar. Since dollar, not gold, became the standard, the countries began stockpiling dollars to back up their own currencies and foreign trade, allowing the US to print money, which went primarily towrds foreign affair adventures like defeating socialism.
Now, the worlds largest net energy exporters, Russia, Iran and Venezuela are out to change the dollars tie to oil. China will wait until it has sucked the US dry before dumping its foreign exchange reserve dollars. US trade sanctions are really to slow down this enormous accumulation of foreign exchange reserve dollars by any one country, because if this one country decides to dump dollars, other nations will have to follow suit. After all, no one wants to be left with worthless paper.
By the end of 2006, 67.7 percent of all foreign exchange reserves were in dollars and 25.2 percent in euros. The scary thing is that competition from euro has just now begun. Then what accounts for 36 percent drop in the value of dollar since 2002? Its due to the fact that the US government has printed so many dollars that even dollar hegemony scheme has become too saturated to support its excesses.
Since 1981, the focus of Reagan and his cold warriors -- now they are called neo-cons or zio-cons, has been to see the USSR fail, probably beacuse it supported Arabs against Israel. If they could defeat the Soviets, entire world would become their playground. So they put all their eggs in one basket and went after the Soviets. To completely focus on this, they said, lets give the American people what they want so they dont interfere with our adventures: Low federal income taxes and easy credit. This has led to the federal debt of 9.114 trillion dollars and total government, business and private debtat an estimated 48 trillion dollars -- compare it to the national wealth of the US -- market value of everything in the US -- which is estimated at 33 trillion dollars. The country is literally bankrupt.
Now, the Russia is back. China and Iran have become considerably stronger. Brazil is growing closer to China. Without oil, all the US has left is 160 billion in gold and 63 billion in foreign exchange reserve dollars to back up its currency. I am not sure how many dollars are in circulation within the US, but global foreign exchange reserve dollars add to about 6.5 trillion dollars. All those dollars backed by 160 billion in gold and 63 billion in foreign exchange reserves. Laughs? Now, they dont know what to do, except blame it all on the American democracy, rather than their priorities and misadventures.
Peak oil alone does not explain oil prices as high as 100 dollars a barrel over such a short period of time. I think that high oil prices are to keep the dollar afloat. More the price of oil, more the dollars needed to buy this oil. Here is just another temporary scheme that, although enriching oil companies, is draining the US economy and strengthening the largest oil exporters, most of whom are against them.
Re: Dollar Got Bush Wacked :D
There has been an effort to establish dollar hegemony since WW2. Why is the currency hegemony so lucerative? Because it allows a government to print a lot more money, export its inflation, demoninate its foreign debt in its own currency and pay interest thereon by printing even more money, and keep cost of living low by printing money to import real goods and services.
Thanks JayR, very informative.............
So what you r saying is that along with "Shock and Awe" it is also important to "Dazzle with Dollars"...........Siqqa Jamao!.. as they say in Urdu!
However when Dollar drops in value against other world currencies, will it not also make US products cheaper for other countries to import, hence bring back some jobs that have gone overseas?
Re: Dollar Got Bush Wacked :D
However when Dollar drops in value against other world currencies, will it not also make US products cheaper for other countries to import, hence bring back some jobs that have gone overseas?
with large chunk of production/manufacturing gone abroad, what will they import? World at large prefers either european or Japanese cars (now Chinese/Korean cars are on the rise), only weapons and ammunition (or aeroplanes to an extent) is something that could be exported.... what else do you think can be exported?
Re: Dollar Got Bush Wacked :D
with large chunk of production/manufacturing gone abroad, what will they import? World at large prefers either european or Japanese cars (now Chinese/Korean cars are on the rise), only weapons and ammunition (or aeroplanes to an extent) is something that could be exported.... what else do you think can be exported?
***PROTECTION...................................:D
We will protect the Whole World from all the Crazies out there............:)
We have the experteeze........................Right?
Re: Dollar Got Bush Wacked :D
I think it should be - bush wacked dollar and then dollar started wacking bush!!!