The demise of the dollar

[Cheetah786]

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.


Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.

China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.

"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

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 demise of the dollar - Business News, Business - The Independent

 

[rajeev]

Though everyone know US taking advantage of having the reserve currency, there is no real competitor to US currency. About 65% of world's banks hold US currency as reserve.

The next highest currency in reserve is Euro, but still very far behind US currency.

However, it is an implicit expectation that bad monetary policy if continued would move the process of removing US currency as reserve, more faster.

 

[idune]

let me bring up another latest event that will show how dollor will slowly but surely loose its prominence.

Brazil just won the Olympic bid for 2016. Brazil-China perhaps has most agressive plan and action in place to use each other currency in trade by passing dollar. China had extended more than $20 billion of easy term credit to Brazil already. Economically and politicall these two duo are very tight.

With this Olympic, Brazil will spend 10 of billions in infrastructure and facilities. Guess who will bag most of these big ticket construction work? China with its Olympic experience and deep pocket will for sure will be most closest partner in finnacing, contarct and more trade.

Western financial institutions which were controlling such big ticket construction in the past will largely be left out; so is dollar.

This is just a small example against global trade and transaction volume but more and more such pockets of replacing dollar has been sprung up. All the while most americans in the dark that their crdeit based economy will face severe jolt.

 

[rajeev]

let me bring up another latest event that will show how dollor will slowly but surely loose its prominence.

Brazil just won the Olympic bid for 2016. Brazil-China perhaps has most agressive plan and action in place to use each other currency in trade by passing dollar. China had extended more than $20 billion of easy term credit to Brazil already. Economically and politicall these two duo are very tight.

With this Olympic, Brazil will spend 10 of billions in infrastructure and facilities. Guess who will bag most of these big ticket construction work? China with its Olympic experience and deep pocket will for sure will be most closest partner in finnacing, contarct and more trade.

Western financial institutions which were controlling such big ticket construction in the past will largely be left out; so is dollar.

This is just a small example against global trade and transaction volume but more and more such pockets of replacing dollar has been sprung up. All the while most americans in the dark that their crdeit based economy will face severe jolt.

Yes, I agree China is attempting to get away from US dollar. Just like Brazil's case- there also similar arrangement with another ASEAN country.

But before they get their currency as important, they need to free-float --would a major impact to Chinese exports as this would raise the prices of their products worldwide potentially can make their products uncompetitive.

 

[Cheetah786]

Though everyone know US taking advantage of having the reserve currency, there is no real competitor to US currency. About 65% of world's banks hold US currency as reserve.
The next highest currency in reserve is Euro, but still very far behind US currency.

However, it is an implicit expectation that bad monetary policy if continued would move the process of removing US currency as reserve, more faster.

i dont no how to tell ya man but Most of these so called banks have no Real money left.


I agree China is attempting to get away from US dollar.

India is also part of the countries thats behind this push.

 

[rajeev]

i dont no how to tell ya man but Most of these so called banks have no Real money left.


I agree China is attempting to get away from US dollar.

India is also part of the countries thats behind this push.

Yes I agree. India is a small country. US GDP is about 25% of the world economy. It will take long time to playout.

 

[dbc]

Do you know why the dollar appreciated rapidly against all major currencies and 100 billion $ in US treasury bonds were purchased in 4 short weeks at the onset of the latest financial crisis.

 

[Cheetah786]

Do you know why the dollar appreciated rapidly against all major currencies and 100 billion $ in US treasury bonds were purchased in 4 short weeks at the onset of the latest financial crisis.

The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the "privilege" of building a huge trade deficit.
"Important progress in managing imbalances can be made by reducing the reserve currency country?s 'privilege' to run external deficits in order to provide international liquidity," UN undersecretary-general for economic and social affairs, Sha Zukang, said.

Speaking at the annual meetings of the International Monetary Fund and World Bank in Istanbul, he said: "It is timely to emphasise that such a system also creates a more equitable method of sharing the seigniorage derived from providing global liquidity."
He said: "Greater use of a truly global reserve currency, such as the IMF?s special drawing rights (SDRs), enables the seigniorage gained to be deployed for development purposes," he said.
The SDRs are the asset used in IMF transactions and are based on a basket of four currencies -- the dollar, euro, yen and pound -- which is calculated daily.
China had called in March for a new dominant world reserve currency instead of the dollar, in a system within the framework of the Washington-based IMF.
UN calls for new reserve currency

 

[rajeev]

Do you know why the dollar appreciated rapidly against all major currencies and 100 billion $ in US treasury bonds were purchased in 4 short weeks at the onset of the latest financial crisis.

Dollar appreciation is because of deleveraging happening in all levels of the US society and the world. Last month, US consumers have decreased their debt by 16% on annual basis extrapolation. So it is very likely the deflation will keep on happening until the world sees the recession is finally over. Almost 80% agree, but people are worried of a small change of W-shaped recession. This thesis is based on the fact US govt cannot keep on maintaining the govt spending (US deficit was 1.4 trillion this year and expected to reach 1.8 trillion by year end). Once W-shaped recession out of the window, dollar should appreciate or depreciate based on actions of Fed. If Fed keeps interest rate low for long, it will have bad consequences, but my experience says Fed will increase interest rates by May-Sep next year. Lets see!