Seven Countries Considering Abandoning
the US Dollar
by Jessica Hupp
It'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.
The Telegraph reports 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 believes
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.
In 2005, Korea announced 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 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.
After already dropping the dollar peg
in 2005, China has more trouble up its sleeve. Currently, China
is threatening 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, China has the power to take the wind
out of the dollar.
Venezuela holds little loyalty to the
dollar. In fact, they've shown overt disapproval, choosing to
establish barter deals 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 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 Venezuela's state oil company
Petroleos de Venezuela SA to change its dollar investments to
euros and other currencies in order to mitigate risk.
Sudan is, once again, planning 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 to 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 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.
Iran is perhaps the most likely candidate
for an imminent abandonment of the dollar. Recently, Iran requested
that its shipments to Japan be traded for yen instead of dollars.
Further, Iran has plans in the works to create an open commodity
exchange 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
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 interest 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,
"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 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
What does this all mean?
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.
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.
Global Research Articles by Jessica Hupp