vs. Euro -A Question of Hegemony
By Syed Arif Hussaini
The U.S. dollar, the international
currency of global commerce and of world reserves
since the end of WWII, is currently under pressure
to make room for the 5-year old European currency,
The dollar accounts for about 2/3rd of all official
exchange transactions; half of all world exports
are denominated in dollars; so are all IMF loans;
and it is the de facto world reserve currency. But,
the real strength of the dollar lies in its position
as the sole currency for all oil transactions (‘petro
This status of the dollar is based on a tacit understanding
with the Saudi royal family that they would accept
payment for their oil in the U.S. dollars only.
In return the U.S. would protect, through its mighty
war machine, the royal family’s right to rule.
There is, however, no international commitment or
compulsion that the dollar will be the only monetary
instrument for payments for oil. It is the oil producers,
the members of OPEC, who demand payments in dollars.
Every one accepts dollars because dollars can buy
oil -the most crucial commodity for manufacturing,
energy, communication etc.
Only the U.S. can print the dollars and pay them
to various nation states in return for their commodities
and services. The nation states give a bulk of them
to OPEC members for oil, who in their turn recycle
them back into the U.S. through purchases of Treasury
Bills, U.S. stocks, real estate, etc.
The world’s interlinked economies compete
now chiefly to capture the needed dollars to service
dollar-denominated foreign debts and to accumulate
dollar reserves to sustain the exchange value of
their domestic currencies. This hegemonic position
of the dollar is sustaining the status of the US
as the supreme economic power despite constant current
account deficits and the biggest national debt.
The U.S. national debt by April, 2003 had already
crossed $6 trillion against a gross domestic product
of $9 trillion.
An analytical article appearing on the front page
of the L.A. Time of November 14 mentioned that the
dollar had dropped in the first week of November
“to a record low against the 5-year old Euro
($1.30=E 1), a 12 year low against the Canadian
dollar ands a nine year low against an index of
major currencies”. Many analysts don’t
see anything that will stop the decline. Foreigners
who had been buying almost half of the U.S. bonds
and securities, the country’s IOUs, were conspicuous
by their absence when the treasury bonds were offered
for sale on September 9. Fortunately, the buyers
returned soon after, ending the ensuing panic.
“We are borrowing”, remarked Pat Buchanan
in his latest book “$1 trillion a year to
finance our new empire, our welfare-warfare state,
and our binge-buying at the malls.”
Considering the crucial role of the dollar in the
world trading system, particularly in respect of
oil, Saddam Hussein sealed his fate when he decided
to switch to the Euro in November, 2000, as he did
not want to deal ‘in a currency of the enemy’.
Not only that, he later on converted his $10 billion
reserve fund at the UN, accumulated through the
facility of ‘oil for food’, into Euro
@ $ 0.82= E 1.00. This subversive step caused, as
expected a fall in the par value of the dollar as
against the Euro. Within a year, the Euro was selling
for $1.05. Iraq’s move also created a momentum
among other OPEC countries towards Euro as an oil
transaction currency standard. That had to be stopped,
Iraqi oil well captured, a pliable regime installed
that may enable the U.S. to smash OPEC’s hold
over oil prices.
The other major oil producing country, Venezuela,
fourth biggest oil producer, shifted to barter deals
by accepting from its South American neighbors products
and commodities for its oil. That brought the wrath
of the U.S. against President Chevez.
North Korea, a member of the Axis of Evil, has already
dropped the dollar in favor of Euro as the currency
covering its trade.
Another member of the Axis, that has been stepping
out of line, is Iran. It has already converted a
major portion of its central bank reserve funds
to the Euro and has been debating the pros and cons
of a total shift to Euro in its oil exports. It
is constantly being charged of enriching uranium
to acquire atomic weapons, despite its solemn assurance
that it had stopped the project, and despite the
certification of the concerned UN agency -IAEA-
that the country was no longer engaged in such activities.
That reminds one of the Weapons of Mass Destruction
(WMD) charge against Iraq, or the tiger of the fable
accusing the ewe of roiling the stream water.
Iranians should be seeing clearly the writing on
the wall and may therefore avoid “the Great
Satan” outlook and adopt, one hopes , a pragmatic
strategy like that of Col. Gaddafi of Libya.
Some members of OPEC expressed an interest, at their
meeting in Spain in mid April, 2002, in leaving
the dollar in favor of the Euro.
The U.S., it might be relevant to point out, has
been tolerating the OPEC cartel since 1973 as the
members have been investing their surplus petro-dollars
in U.S. economy, by buying the U.S. treasury bonds
(IOUs), stocks, real estate, etc. If members of
OPEC do adopt a firm stand against the dollar, it
might toll the bell for that organization itself.
The ruling neo-conservatives cannot be expected
to be tolerant of such moves which remove the main
fiscal pillar on which the economy stands. The administration
stands committed that it would not enhance taxes
or impose any new levy. It cannot reduce the defense
expenses and withdraw troops from over 100 foreign
As for the erosion of the value of U.S. dollar,
it is attributable to a huge budget deficit -$413
billion in fiscal ending Sept. 30, 2004- an enormous
trade deficit -for every $20 of exports, the imports
were $36- the current account deficit has risen
from 1% of GDP in 1990 to 5.4% now. To maintain
the status quo, government will have to request
the Congress to raise the government’s $7.4
trillion debt ceiling so it could borrow more money
to maintain current level of consumption.
A sinking currency represents the silent theft of
a people’s wealth by their rulers, argues
Buchanan. “You cannot run a world empire on
a collapsing currency”.
But it would be wise to remember that the U.S. has
a war machine which cannot be trumped by all the
armies of the world combined and the U.S. has no
hesitation in exercising its policy of preemptive
strike. It would go to any extent to fend off any
attempt by OPEC or any of the oil producing countries
to dump greenbacks.
As the eminent historian, Arnold Toyenbee, has found
no civilization has ever been destroyed by any outsider
until it has started eroding from inside. The U.S.
will have to be wary of its economic implosion much
more than using its stick against anyone who is
not servile and obsequious to its will. - Arifhussaini@hotmail.com
November 17, 2004