Dollar vs. Euro - Hegemoney (sic)

Pressure Point ^ | January 01, 2003 | Some communist somewhere...

[Joe Brower]

Dollar vs. Euro - Hegemoney
January 01, 2003

The Federal Reserve's greatest nightmare is that OPEC will switch its international transactions from a dollar standard to a euro standard. Iraq actually made this switch in Nov. 2000 (when the euro was worth around 80 cents), and has actually made off like a bandit considering the dollar's steady depreciation against the euro.

The real reason the Bush administration wants a puppet government in Iraq - or more importantly, the reason why the corporate-military-industrial network conglomerate wants a puppet government in Iraq - is so that it will revert back to a dollar standard and stay that way." (While also hoping to veto any wider OPEC momentum for the switch from Iran - which is seriously considering switching to euros as their oil transaction currency as of Sept 2002 - and other OPEC members including Saudi Arabia whose regime appears increasingly weak/threatened from an internal coup).

This administration is acutely aware of this and in preparation for invading Iraq we will create a huge and permanent military presence in the Persian Gulf region, just in case we need to grab Saudi's oil fields as well as Iraq’s…

Saddam sealed his fate when he decided to switch to the euro in late 2000 (and later converted his $10 billion reserve fund at the U.N. to euros) - at that point, another manufactured Gulf War become inevitable under Bush II. Only the most extreme circumstances could possibly stop that now and I strongly doubt anything can - short of Saddam getting replaced with a pliant regime.

Big Picture Perspective: Everything else aside from the reserve currency and the Saudi/Iran oil issues (i.e. domestic political issues and international criticism) is peripheral and of marginal consequence to this administration. Further, the dollar-euro threat is powerful enough that they'll rather risk much of the economic backlash in the short-term to stave off the long-term dollar crash of an OPEC transaction standard change from dollars to euros. All of this fits into the broader Great Game that encompasses Russia, India, China.

The effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their reserve funds and replace these with euros. The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example). You'd have foreign funds stream out of the U.S. stock markets and dollar denominated assets, there'd surely be a run on the banks much like the 1930s, the current account deficit would become unserviceable, the budget deficit would go into default, and so on. Your basic 3rd world economic crisis scenario.

The United States economy is intimately tied to the dollar's role as reserve currency. This doesn't mean that the U.S. couldn't function otherwise, but that the transition would have to be gradual to avoid such dislocations (and the ultimate result of this would probably be the U.S. and the E.U. switching roles in the global economy).

The following two recent articles discuss Iran’s vacillating position about switching to the euro as their standard currency for oil exports, and this may help explain Bush’s sudden urgency to topple Saddam. In the aftermath of toppling Saddam it is clear the U.S. will keep a large and permanent U.S. military force in the Persian Gulf. Indeed, the Bush administration has no “exit strategy” in a post-Saddam Iraq, as a permanent U.S. military force will be needed to "maintain order" (ie. to protect the newly installed puppet regime).

Paradoxically, if the war in Iraq goes poorly or becomes prolonged, it is possible that Iran and other OPEC members may do exactly what Saddam did, thus creating the very situation this administration is trying to prevent, an OPEC switch to the euros as their oil transaction currency standard.

[Joe Brower]

Comments?

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[JohnGalt]

bump.

[mdmathis6]

Time to become energy indepedent!

[KarlInOhio]

Oil from ANWR, off the California coast, and off of Florida would still be dollar denominated. But of course we can't drill in any of those places.

[Amalie]

Interesting hypothosis, but neglects some of the critical issues facing the Euro as a universal currency. We'll see if Blair will be able to move Britain off the pound and onto the euro (something he is likely to attempt) as a result of his military popularity. The Euro has not been a popular issue among those Brits who recognize the benefits of financial autonomy not connected to the rest of Europe. Regardless of the writer's slant about alternative reasons, the Iraqi war was still waged more about WMD and global terrorism / tyranny then anything else. Our economy is still the world's largest, and while dollar/euro conversion is an issue, it would take something completely catastrophic to destabalize it like the author suggests IMO. I think the writer is probably somebody who desires to see the euro in higher regard then it currently enjoys; sour grapes...

[Pylot]

I have stated the exact scenario posited by this article here on Free Republic in the past.

The reason the US will NEVER become oil independant is that we need to be sending great sums of dollars abroad to continue the expansion of our economy. The fractional reserve system requires this.

As long as the US remains stable, those dollars sent overseas usually come right back into our stock market. Those dollars used by us to purchase oil are used by the oil producers to purchase things everywhere. This is one dollar outflow the US government and the US economy can not afford to have slow down or come to a stop.

[gaucho]

There is some fact in this. The Euro is an economic threat to the Dollar as a basis currency. Because oil transactions are all conducted in dollars, this means that the US can just print money. If the Euro where to become the basis currency for oil, we would no longer enjoy the privilege of just printing money, the EU would and the dollar would have to be converted against the Euro making everything more expensive for the US.

[RS]

"The effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their reserve funds and replace these with euros."

How does this follow ? Why would a country like Italy have their reserve funds in dollars to begin with ?

Do you seriously think that the oil countrys themselves, with all the dollars in the banks, will allow 20-40% of the value of their savings and investments go away ?
Why not just price their oil in Saudi Dinars and watch their profits soar ?

[RS]

"I think the writer is probably somebody who desires to see the euro in higher regard then it currently enjoys; sour grapes..."

I agree..
The Euro has nothing really to prop it up. The EU would love to have some reason for the rest of the world to want to deal in the Euro, kind of like a gigantic pyramid scheme.

[<1/1,000,000th%]

The United States economy is intimately tied to the dollar's role as reserve currency. This doesn't mean that the U.S. couldn't function otherwise, but that the transition would have to be gradual to avoid such dislocations (and the ultimate result of this would probably be the U.S. and the E.U. switching roles in the global economy).

And with the US economy growing and the EU still shrinking, that means this analyst has yet to introduce himself to reality.

[longtermmemmory]

in the words of a greek bank president friend, "the euro was made to knock down the dollar." They can't beat us with a military so they are going to try and beat us on paper.

[nicollo]

The thesis of this article is silly. While France and Germany adopted it in order to control the EU, the Euro is otherwise a desparate attempt to bring order to chaos. Those nations outside of France and Germany that have adopted it did so to stabilize their economies. The world is far larger than 20 European states and their own currencies. It's a sad reality, a capitulation more than anything else. Before the Euro, there was no real way to value EU assets.

The English have balked for nationalist and economic reasons. We'll see what happens. Yes, I think Blair will go for it. I'm not sure he'll get it.

[optik_b]

The Dollar has lost a lot of ground to the Euro in the last year.

[nicollo]

So what? Does that confirm this guy's theories?

The dollar has performed remarkably well considering the past two years' economy, and, most importantly, the stock market. On top of it, there was huge speculative pressure that pushed the Euro past a buck last Fall. Remember what was going on last Autumn? The world was betting against George W. Bush.

More recently, your chart shows the same. The most recent low hit just before the war started. The recent peak was the day the war started, and it's been jumpy ever since.

If anyone has any interest in this war regarding currency and oil exchange it is the Europeans. They've dug a hole for themselves, and they seem to keep on digging, such as the refusal to drop sanctions (a.k.a. oil). The author of this story needs to look in the mirror. The consipiracy is all his.

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