Greenback grief

Three quick points on Robert Fisk's report that the Gulf countries might dump the dollar as their currency for oil sales.

First, this story isn't new. Oil producers have been murmuring about a new currency for years. The Toronto Globe and Mail reported on this last year, for example.

Fisk's story -- if it's accurate -- indicates that those talks have progressed from abstraction to something more concrete. That's certainly not surprising, given the weakness of the dollar in recent years. (His story has been met with a flurry of denials, but Fisk is one of the better Middle East writers out there -- though, I should note, not usually a business reporter.)

Second, as the Financial Times points out, oil producers are still many years away from actually switching currencies. So the only short-term impact of this story is that it will undermine confidence in the already-weak dollar.

Third... Robert, man, you really undermine your article with this last paragraph.

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.

The U.S. invaded Iraq for a lot of really stupid reasons. Saddam's choice of reserve currency was not one of them.

(Bonus observation: Obama is single-handedly responsible for the dollar's decline, of course, so this story is further proof that he is in fact a black Jimmy Carter.)

1 Comment

Tord Steiro — October 6, 2009 6:03 PM

Let's talk a little about economics in all this, shall we?

Remember, we ahve global recession going on, and also, remember that this recession is 1. Particularily bad, and, 2. Based on some unsound economic fundamentals.

And it is #2 that is most interesting here, and the strong dollar is of course one of the root causes. A strong dollar can in fact be looked upon as a 'resource curse', since it makes US production uncompetitive. Together with the vast creditworthiness of the US (and this is very much connected), we have a situation where the US consumer, be he private or public, have a large incentive to borrow money abroad (the good credit rating the US normally enjoys gives very good conditions) and the high value of the dollar gives incentives to spend this borrowed money on imports.

This crisis may be over soon, but any meaingful growth will not take place before the US consumer stops borrowing abroad, and stops importing so much. Hence, we should very much welcome a weaker dollar.

Of course that is a problem for all those who base their existence on US world dominance (and, in fact, ONLY them) - because, as the British world dominance gradually collapsed after the £ Sterling went out of fashion, the US world dominance will gradually decline as the greenback goes out of fashion.