The Dollar Debate Continues: OPEC Leaders and The Future of US Currency
Sharon L. Secor
November 24, 2007
The OPEC Heads of State summit that took place over the weekend of November 17-18 was a rare event, only the third since the launching of this organization 47 years ago. As the meeting was held, the world was treated to a rare view of private discussions between OPEC members. In a rather ironic twist, representatives of several OPEC nations were debating the possible impact of their discussion on the global economy if its details were made public, only to discover that the debate had been inadvertently broadcast to members of the press.
Dollar devaluation was the topic of the rather heated debate among these representatives of the OPEC nations, with several members calling for the end of the longstanding relationship between the oil trade and US currency, urging the organization agree to use the euro as the primary currency for its international oil trade. Citing the eroding value of reserves held by OPEC nations and rising oil prices, events to which the sinking dollar has contributed, leaders of Venezuela and Iran indicated that some OPEC nations are concerned for the safety of their assets as the dollar continues to plunge in value. Saudi Arabia's foreign minister argued that the subject is too sensitive be officially addressed by OPEC, as public knowledge that leaders were considering such a move could accelerate the decline of the dollar, further eroding the reserves of these oil producing nations.
Many analysts and media outlets have dismissed this statement of concern by Venezuela and Iran as politically motivated, as tensions between these nations and the United States are high. Others have questioned the motivation of the Saudi representative's refusal to discuss the matter, due to their status as US allies. By the end of the summit, a compromise seemed to be made between OPEC leaders. While official announcements lacked any mention of the declining dollar, OPEC finance ministers were reportedly directed to study the issue. Regardless of their motivation for speaking out, officials from Venezuela and Iran are not alone in their stated concerns, as similar fears have been voiced by officials from countries friendlier to the US.
Chinese officials have commented that preserving the value of its reserves has become a concern, as most are held in the US dollar. Confidence in the dollar is waning in the United Arab Emirates also, as evidenced by statements made by the governor of its Central Bank, which advised the six countries of the Gulf Cooperation Council to peg their currency to a basket of currencies, rather than to the declining dollar. Kuwait, another US ally, was forced drop its peg to the dollar in May to combat surging inflation, attributed to the tumbling dollar by its central bank officials. Jean-Claude Juncker, chief political spokesman for the euro, criticized US policies in October, urging the government to do more to curb devaluation of the dollar.
Diminishing confidence in the dollar has the potential to cause distress in the domestic economy of the United States, as well as having broader implications in the global economy. A growing number of nations have begun to hedge their bets, diversifying foreign currency holdings in recent years to reduce the exposure of their reserves to the risks of the plummeting US dollar. Among these are China and Russia, who have gradually shifted the makeup of foreign currency reserves to contain more euros.
Speculation is rising that the US dollar's status as the global reserve currency is slipping as quickly as the dollar itself. In past years, global reserve status for the dollar was considered quite secure, as there was no real alternative available on the global market. However, the euro has change that, introducing the first currency that is widely perceived as strong enough to compete with the dollar for its preferred reserve status.
The reserve status of the US dollar may face a challenge from yet another direction. The nations of the Gulf Cooperation Council have developed a plan for a regional common currency, with the stated goal to have it in place by the year 2010. A common Gulf currency would most likely replace the dollar as the dominant currency in the oil trade, which would virtually ensure that it would become a major world reserve currency and the preferred reserve currency for Arab nations. Such developments would shift the global balance of power much more dramatically than a simple switch to the euro.
Should the dollar lose its premier reserve status, further devaluation is virtually guaranteed. Some economists are convinced that the dollar would collapse completely if it were to lose its reserve status, citing that status and the dollar's dominance in the oil trade as the chief factors that have kept the it afloat, despite the downward pressures of massive trade deficits and other US financial woes.
Despite the seeming lack of concern in the halls of government about the plunging value of the dollar, a variety of world leaders are paying attention and taking action to protect the global economy from its effects. American citizens would be wise to prepare as well, taking heed of the wisdom of many global economists, rather than depending upon the biased pronouncements of United States officials for guidance.
Dollar devaluation was the topic of the rather heated debate among these representatives of the OPEC nations, with several members calling for the end of the longstanding relationship between the oil trade and US currency, urging the organization agree to use the euro as the primary currency for its international oil trade. Citing the eroding value of reserves held by OPEC nations and rising oil prices, events to which the sinking dollar has contributed, leaders of Venezuela and Iran indicated that some OPEC nations are concerned for the safety of their assets as the dollar continues to plunge in value. Saudi Arabia's foreign minister argued that the subject is too sensitive be officially addressed by OPEC, as public knowledge that leaders were considering such a move could accelerate the decline of the dollar, further eroding the reserves of these oil producing nations.
Many analysts and media outlets have dismissed this statement of concern by Venezuela and Iran as politically motivated, as tensions between these nations and the United States are high. Others have questioned the motivation of the Saudi representative's refusal to discuss the matter, due to their status as US allies. By the end of the summit, a compromise seemed to be made between OPEC leaders. While official announcements lacked any mention of the declining dollar, OPEC finance ministers were reportedly directed to study the issue. Regardless of their motivation for speaking out, officials from Venezuela and Iran are not alone in their stated concerns, as similar fears have been voiced by officials from countries friendlier to the US.
Chinese officials have commented that preserving the value of its reserves has become a concern, as most are held in the US dollar. Confidence in the dollar is waning in the United Arab Emirates also, as evidenced by statements made by the governor of its Central Bank, which advised the six countries of the Gulf Cooperation Council to peg their currency to a basket of currencies, rather than to the declining dollar. Kuwait, another US ally, was forced drop its peg to the dollar in May to combat surging inflation, attributed to the tumbling dollar by its central bank officials. Jean-Claude Juncker, chief political spokesman for the euro, criticized US policies in October, urging the government to do more to curb devaluation of the dollar.
Diminishing confidence in the dollar has the potential to cause distress in the domestic economy of the United States, as well as having broader implications in the global economy. A growing number of nations have begun to hedge their bets, diversifying foreign currency holdings in recent years to reduce the exposure of their reserves to the risks of the plummeting US dollar. Among these are China and Russia, who have gradually shifted the makeup of foreign currency reserves to contain more euros.
Speculation is rising that the US dollar's status as the global reserve currency is slipping as quickly as the dollar itself. In past years, global reserve status for the dollar was considered quite secure, as there was no real alternative available on the global market. However, the euro has change that, introducing the first currency that is widely perceived as strong enough to compete with the dollar for its preferred reserve status.
The reserve status of the US dollar may face a challenge from yet another direction. The nations of the Gulf Cooperation Council have developed a plan for a regional common currency, with the stated goal to have it in place by the year 2010. A common Gulf currency would most likely replace the dollar as the dominant currency in the oil trade, which would virtually ensure that it would become a major world reserve currency and the preferred reserve currency for Arab nations. Such developments would shift the global balance of power much more dramatically than a simple switch to the euro.
Should the dollar lose its premier reserve status, further devaluation is virtually guaranteed. Some economists are convinced that the dollar would collapse completely if it were to lose its reserve status, citing that status and the dollar's dominance in the oil trade as the chief factors that have kept the it afloat, despite the downward pressures of massive trade deficits and other US financial woes.
Despite the seeming lack of concern in the halls of government about the plunging value of the dollar, a variety of world leaders are paying attention and taking action to protect the global economy from its effects. American citizens would be wise to prepare as well, taking heed of the wisdom of many global economists, rather than depending upon the biased pronouncements of United States officials for guidance.
Print
Email
