frostfire
11-11-2007, 15:10
INFORMATION CLEARING HOUSE, Thursday, 08 November 2007
7 COUNTRIES CONSIDER ABANDONING U.S. DOLLAR
By Jessica Hupp
http://www.informationclearinghouse.info/article18680.htm
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.
1. Saudi Arabia: The Telegraph
<http://www.telegraph.co.uk/money/main.jhtml;jsessionid=BYRFMD0QYRQTVQFIQMFSFF4AVCBQ 0IV0?xml=/money/2007/09/19/bcnsaudi119.xml > 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.
2. South Korea: In 2005, Korea
<http://www.washingtonpost.com/wp-dyn/articles/A45703-2005Feb22.html>
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.
3. China: After already dropping the dollar peg (http://news.bbc.co.uk/2/hi/business/4703477.stm) 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.
4. Venezuela: 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 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
(http://www.bloomberg.com/apps/news?pid=20601086&refer=latin_america&sid=aGBuWpZJ9cPI)
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.
5. Sudan: 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
(http://www.sudantribune.com/spip.php?article23958) 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.
6. Iran: Iran is perhaps the most likely candidate for an imminent
abandonment of the dollar. Recently, Iran
(http://www.bloomberg.com/apps/news?pid=20601086&refer=latin_america&sid=aGB)
uWpZJ9cPI> 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 dirham.
7. 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 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
(http://www.businessweek.com/magazine/content/04_49/b3911032_mz011.htm)
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 oil exporter.
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.
-----------------------------------------------------
Bloomberg, 08 November, 2007
Dollar Slumps to Record on China's Plans to Diversify Reserves
By Agnes Lovasz and Stanley White
http://www.countercurrents.org/white081107.htm
Nov. 7 (Bloomberg) -- The dollar fell the most since September against the
currencies of its six biggest trading partners after Chinese officials
signaled plans to diversify the nation's $1.43 trillion of foreign exchange
reserves.
.....
7 COUNTRIES CONSIDER ABANDONING U.S. DOLLAR
By Jessica Hupp
http://www.informationclearinghouse.info/article18680.htm
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.
1. Saudi Arabia: The Telegraph
<http://www.telegraph.co.uk/money/main.jhtml;jsessionid=BYRFMD0QYRQTVQFIQMFSFF4AVCBQ 0IV0?xml=/money/2007/09/19/bcnsaudi119.xml > 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.
2. South Korea: In 2005, Korea
<http://www.washingtonpost.com/wp-dyn/articles/A45703-2005Feb22.html>
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.
3. China: After already dropping the dollar peg (http://news.bbc.co.uk/2/hi/business/4703477.stm) 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.
4. Venezuela: 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 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
(http://www.bloomberg.com/apps/news?pid=20601086&refer=latin_america&sid=aGBuWpZJ9cPI)
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.
5. Sudan: 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
(http://www.sudantribune.com/spip.php?article23958) 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.
6. Iran: Iran is perhaps the most likely candidate for an imminent
abandonment of the dollar. Recently, Iran
(http://www.bloomberg.com/apps/news?pid=20601086&refer=latin_america&sid=aGB)
uWpZJ9cPI> 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 dirham.
7. 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 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
(http://www.businessweek.com/magazine/content/04_49/b3911032_mz011.htm)
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 oil exporter.
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.
-----------------------------------------------------
Bloomberg, 08 November, 2007
Dollar Slumps to Record on China's Plans to Diversify Reserves
By Agnes Lovasz and Stanley White
http://www.countercurrents.org/white081107.htm
Nov. 7 (Bloomberg) -- The dollar fell the most since September against the
currencies of its six biggest trading partners after Chinese officials
signaled plans to diversify the nation's $1.43 trillion of foreign exchange
reserves.
.....