Will the Euro Usurp the Dollar?24.10.2003

The "Euro vs Dollar" war is the most recent - and most defining - chapter in gold's 5,000 year history.

 

 

THE ASIAN & EUROPEAN NATIONS COULD DESTROY THE MILITANT USA [& HER SISTER, ISRAEL] NOT BY GUNS, BUT BY ECONOMIC TRADE, EUROS

"World trade was once a game in which the US produces dollars & the rest of the world produces things that dollars can buy.

• Up to 1971, each US dollar represented a fixed amount of gold.

• During the Vietnam War, the US had printed & spent more money than their gold reserves allowed.

• President Nixon had to abandon the gold guarantee. Oil Producing & Exporting Countries (OPEC) agreed they would only accept US dollars in payment for their oil.

• Since then the dollar value is determined by the law of offer & demand on the exchange market.

• This had a major advantage for the US: all other countries would have to buy dollars first before they can obtain oil, creating a permanent demand for American dollars.

• Foreign countries account for roughly 85 percent of the international oil trade.  This is the part of the oil trade that takes place outside the US, between oil producing countries & foreign countries.

• Oil commerce always consumes more dollars. Global consumption increases & raises demands for the dollar, allowing the US to increase its production of dollars.

• Since these dollars are needed outside the US, they have to be made available abroad, each additional dollar abroad has meant it had to leave the US, the US has spent it abroad, & it has increased the US debt.

• As a spiral the annual amounts have gone up & continue to increase, the national debt is increasing explosively now, at over eight trillion dollars ($8,000,000,000,000). 45 percent is owed to foreign creditors.

• US derives a small benefit from ‘seigniorage’ - the profit the US makes from the circulation of nearly $3trillion worth of US banknotes outside the US, which cost nothing to print but are backed by interest bearing Treasury bills. This is worth about $10bn a year. But the real benefit of reserve currency status is that it ensures a virtually insatiable demand for dollars from the world’s central banks, who need the US currency to boost their own reserves & thereby support their own currencies. This has given the US carte blanche to borrow unprecedented amounts of money to fund its wars, tax cuts & consumer spending at very low interest rates.

• The reality is that the "safe harbor" status of the U.S. dollar since 1945 rests on it being the international reserve currency. Thus it has assumed the role of sole currency for global oil transactions (ie. `petrodollar').

• The U.S. prints hundreds of billions of fiat dollars, which U.S. consumers provide to other nations via the purchase of imported goods. These dollars become "petro-dollars" when are then used by those nation states to purchase oil/energy from OPEC producers (except Iraq under Sadam, Venezuela, & perhaps Iran in the near future).

If oil importers bought euros to buy oil, the demand for euros would surge &the dollars would fall.

• It would also increase the use of the euro as a reserve currency. It could be devastating for the dollar.

• If the world’s central banks started switching part of their reserves into euros, or even simply stopped buying dollar assets, the value of the dollar would collapse, since demand for dollars would fall. Worse, the US would find it very hard to finance its giant twin deficits - its trade & budget deficits.

• The dollar’s reserve currency status has allowed it to run-up debts no other country in history could have got away with. America’s external debts - its trade deficit - now stands at $600bn, equivalent to 5% of GDP. This would have been unthinkable under the gold standard, when those debts would have to have been redeemable in gold.

• The euro dominates in Germany's hinterland: Eastern Europe, the Baltic States & the Balkans, whereas the US dollar tends to prevail in the Caucasus & Central Asia.

While the US dollar prevails throughout the Western Hemisphere, the euro & the US dollar are clashing in the former Soviet Union, the Balkans, Central Asia, sub-Saharan Africa and the Middle East.

Developing countries are following the lead of Venezuela & China in diversifying their currency reserves, balancing dollars & euros.

According to research by Dr. David Spiro

• in 1974 the Nixon administration negotiated assurances from Saudi Arabia to price oil in dollars only, & invest their surplus oil proceeds in U.S. Treasury Bills.

• In return the U.S. would protect the Saudi regime.

• According to his book, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets ratical3, these purchases were done in relative secrecy.

• These agreements created the phenomenon known as "petrodollar recycling."

• In effect, global oil consumption via OPEC provides a healthy subsidy to the U.S. economy. Hence, the Europeans created the euro to compete with the dollar as an alternative international reserve currency.

• Obviously the E.U. would also like oil priced in euros as well, as this would reduce or eliminate their currency risk for oil purchases.
   

The French & Germans want oil producing countries to switch to euros for oil, because they know that this will immensely accelerate the advance of the new currency to world-wide reserve status, which will make Europe, & thereby they hope to be the next "superpower."

 

Denmark

• Polls in Denmark now indicate that the euro would pass with a comfortable margin & Norwegian polls show a growing majority in favor of EU membership. Indeed, with Norway having already integrated most EU economic directives through the EEA partnership & with their strongly appreciated currency, their accession to the euro would not only be effortless, but of great economic benefit.

Indonesia

• In April 2003 Bloomberg News reported that Indonesia, a small non-OPEC producer with a Muslim majority was evaluating a "petro-euro."
• "Pertamina, Indonesia's state oil company, dropped a bombshell in considering dropping the U.S. dollar for the euro in its oil & gas trades.

Iraq

• already under USA control since 1991 by the embargo. Sadam seemed already beaten.

• In 2000 Sadam asked the UN to convert the account of the Oil For Food program from dollars into euros.

• From November 2000 Iraq sold its oil in euros & later converted his $10 billion reserve fund at the U.N. to euros. A political move & one that improved Iraq's recent earnings thanks to the rise in the value of the euro against the dollar.

• AMERICANS HAD TO BUY IRAQ OIL IN EURO CURRENCY

• WHEN SADDAM HUSSEIN DENIED THE AMERICAN DOLLAR FOR OIL SALES, HE SEALED HIS FATE,

• HIS DEMAND OF ONLY USING THE EURO DOLLAR IN 2000 CREATED AN AMERICAN  NEED TO BE RID OF HIM

Iran

• contemplating  pricing their oil export in the euro currency.

• Iranian & industry sources say Iran's proposal to receive payments for crude oil sales to Europe in euros instead of U.S. dollars is based primarily on economics, . "But politics are still likely to be a factor in any decision, they said, as Iran uses the opportunity to hit back at the U.S. government, which labeled it part of an `axis of evil.'

• "The proposal, which is now being reviewed by the Central Bank of Iran, is likely to be approved if presented to the country's parliament, a parliamentary representative said. "`There is a very good chance MPs will agree to this idea . . . now that the euro is stronger, it is more logical,' the parliamentary representative said." ratical.org

• Moreover, & perhaps most telling, during 2002 the majority of reserve funds in Iran's central bank were shifted to euros. It appears imminent they intend to switch oil payments to euros.

• "More than half of [Iran] the country's assets in the Forex Reserve Fund have been converted to euro, a member of the Parliament Development Commission, Mohammad Abasspour announced. He noted that higher parity rate of euro against the US dollar will give the Asian countries, particularly oil exporters, a chance to usher in a new chapter in ties with European Union's member countries.

• "He said that the United States dominates other countries through its currency, noting that given the superiority of the dollar against other hard currencies, the US monopolizes global trade. The lawmaker expressed hope that the competition between euro & dollar would eliminate the monopoly in global trade." ratical.org2

• After toppling Saddam the US administration, might very well decide that Iran's disloyalty to the dollar qualifies them as the next target in the `war on terror.'

North Korea

• recently decided to officially drop the dollar & begin using euros for trade, effective Dec. 7, 2002. [10]
• Unlike the OPEC-producers, North Korea's switch will have negligible economic impact; illustrates the geopolitical fallout of President Bush's harsh rhetoric.

Russia

• For convenience. Russia sells most of its oil to Europe & gets most of its exports from the euro-zone.
• pricing oil in euros would enable both sides to save on the costs of currency conversion.
• if Russia priced its oil in euros, its own euro reserves increase &those of the countries that buy its oil, since they will need to use euros to pay for it.
• if other oil-producing countries switched to the euro, the impact would be huge.
• The real importance of such a move would be political, symbolic in the context of Europe’s ambitions to establish the euro as an alternative reserve currency to the dollar. it would also weaken the American dollar
• may be linking `political overtones' to their exchanges of dollars for euros.
• Russia's central bank that the appeal of dollar-denominated assets is waning.
• "Oleg Vyugin, first deputy chairman at the Russian central bank, said the bank plans to cut the share of US dollars in its foreign exchange reserves & increase the share of other currencies. . . .
• "Although Russia's own foreign exchange reserves are fairly small by comparison with the world's biggest central banks, the question is, `Will other central banks follow and what does this do to the ability of the US to finance its current account deficit?' said Marc Chandler, chief currency strategist with HSBC in New York. I
• f a Russian move to the euro were to prompt other oil producers to do the same, it could be a "catastrophe" for the United States, Ibrahim said. "There are already a number of countries within OPEC that would prefer to trade in euros." [73]

Venezuela

• diversifying their currency reserves, balancing dollars & euros.
• the fourth largest producer of oil, & the corporate elites whose political power runs unfettered by Bush
• showing interest in privatizing Venezuela's oil industry
• Chavez's `barters' with 12 Latin American countries & Cuba & are effectively cutting the U.S. dollar out of oil transaction currency cycle.
• Commodities are being traded among these countries in exchange for Venezuela's oil, thereby reducing reliance on fiat dollars. If these unique oil transactions proliferate, they could create more devaluation pressure on the dollar by removing it from its crucial `petro-recycling' role. Continuing Bush attempts to remove Hugo Chavez, like Saddam, seem likely.