Oil against dollar; will a new currency appear to replace dollar in oil trading

26.10.2009 15:20
Oil against dollar; will a new currency appear to replace dollar in oil trading

YEREVAN, October 26, /АRKA/. U.S. dollar is going through dire times. Despite some signs of economic recovery in the United States, the confidence in the American currency is slow to pick up.

A deep-seated debate over commodity dealings was rekindled by an article in the British newspaper The Independent earlier this month claiming that China, Japan, Russia and France were in secret talks with Gulf Arab states to stop using the U.S. dollar for oil trading.

The respectable newspaper said finance ministers of these countries and heads of their central banks had had several focusing d on switching over a nine-year period 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.

Brazil and India were said to also take interest in the new reserve currency. If these countries are indeed discussing the transition to a new reserve currency Venezuela, the largest oil producer in Americas and a long time opponent of the USA, would like to join it too. Iran, another oil producing nation, with a big role in OPEC and the main opponent of the United States in the Middle East, is likely to endorse it as well.

At any rate, regardless of how developments may unfold, rumors about the ‘conspiracy’ against the U.S. greenback is one thing and concrete steps, made in that direction are a different thing. Saudi Arabia, the United Arab Emirates, Qatar and Kuwait are the ‘weak link’ in the purported talks. First, because their common currency is not created yet, although talks on it have been underway for some time.

Even a name was invented for it ’the Gulf Dinar,’ but nevertheless, the idea is still a mirage. Perhaps, because the ‘involved; countries do not want to assume additional commitments, for example, to limit their budget deficits, the permissible amount of state debt, inflation rate and so on. And perhaps, because of political differences which are also present. Let us imagine that the fate is favorable to ‘Gulf Dinar’ and it comes to life.

Then the countries that would use it would not like to have anything with new ‘reserve currency’ for oil trading. But according to the report in The Independent the ‘Gulf Dinar’ is to be in the oil basket too. Saudi Arabia, Qatar, the United Arab Emirates and Kuwait are traditional allies of the United States and loyal to its currency.

Even the depreciating dollar that promises them heavy damages, has not affected this loyalty. So, it was not surprising that Saudi Arabia and Kuwait were the first to deny the fact of talks.

Head of Saudi Arabia’s Central Bank, Muhamad al-Jassser, said his government did not hold any talks with other oil producing countries and big oil consumers, like China, on replacing U.S. Dollar with another currency in oil trading. Japanese finance minister and Kuwaiti oil minister echoed these statements. Russian deputy finance minister Dmitry Pankin also denied the rumors. The question now is whether these officials put up a bold front or the report was just a newspaper hoax.

It is a thankless job to look for who could have done it. But the report about a ‘conspiracy’ against the U.S. Dollar appeared at a ‘right’ time and against the backdrop of forecast that the global economy and first of all the U.S. economy would be hit by the second wave of crisis.

IMF chief Dominique Strauss Kahn and World Bank head Robert Zellick, an American economist Nuriel Rubini and a Nobel Prize winner Joseph Stiglitz, all were speaking about it at an IMF conference in Turkish Istanbul Their conclusions coincide.

The current crisis may go on by reducing and increasing and this means that the global economy will see worse times in the mid-term perspective. There is no doubt that the U.S. Dollar will face the first blow, the confidence in which was spoiled by the first wave of the crisis.

However, these developments could be looked at from a different perspective. The United States is not interested much in strengthening the Dollar, because a weak Dollar raises American goods competitiveness, but other countries are not at all happy about it.

EU leaders have said they would like to see a stronger Dollar, but their wishes will hardly come true now. The U.S. Dollar is being dragged down by reports about purported ’conspiracy’ and the forecasts about the second wave of the global crisis.

These speculations are being fueled by predictions that by 2030 the current G-7, in which the U.S. plays the key role, will be replaced by another G-7, made up of Brazil, Russia, India, China, Indonesia, Turkey and Mexico. It is not clear who will be playing the key role in the new G-7. But if this forecast, made by the way, by PricewaterhouseCoopers, comes true, Dollar would hardly retain his role of reserve currency.-0-

By Anastasia Skogoreva, chief editor of National Banking Magazine, for RIA Novosti.

The opinion of the author may not coincide with the position of the news agency.

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