Robert Fisk at The Independent:
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead 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, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
Yves here. The explicit linking of security issues in the Middle East and the desire of a lot of countries to more away from the dollar as reserve currency is troubling, and the Independent also reads this as a thinly veiled threat:
“This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region’s conflicts into a battle for great power supremacy…. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold…
The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. “One of the legacies of this crisis may be a recognition of changed economic power relations,” he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China’s extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America’s power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.”
John Wells at Moderate Voice:
If it’s true, it signals a devastating worldwide blow to an already hammered dollar. On one hand, you can’t blame other nations for moving away from America’s currency with our current economic and budgetary woes. The move would leave America with a decidedly lessened global influence in fiscal and monetary matters and solidify a growing Chinese stranglehold on Middle Eastern oil in Iraq and Iran.
The whispers seemed to have mutated into the writing on the wall. Through whatever mechanism of blame, America’s global influence is on the decline. Our dollar weakens while our manufacturing and production is outsourced to other nations, all while government spending grows out of control and the federal debt increases with each passing day.
Against this backdrop America should be strengthening its own economic foundation instead of expanding government entitlements and running up record deficits. Instead of road signs and seasonal construction we should be fortifying and buttressing our manufacturing and tech sectors. Instead of pleading for China to finance more of our debt we should cut the burden of government spending and let the engine of American commerce sputter back to relevance.
If Arab and other oil producers are indeed looking to move away from the dollar, they have cause. The Federal Reserve has been too free and easy for years, pumping too many dollars into the world economy. Like anything else, too many dollars means each one is worth less.
Looking down the road, deficit spending is set to make matters worse. Unnecessary deficits under the Bush Administration have given way to colossal deficits under the Obama administration, plus a free-for-all Congress that seems to be in charge of economic policy. When a government can’t control itself, its economic partners deduce they can’t trust the value of that country’s currency.
There’s still time, though, for the U.S. to bolster the dollar, both to preserve our international leadership and because the global use of the dollar is an economic advantage to our people and our country. Strangely enough, a major friend of dollar can be found across the Pacific, in China.
Notwithstanding the constant talk of the PRC’s rise, Chinese actions overwhelmingly serve to support the dollar. The RMB, a dollar alternative according to some, is as tightly pegged to the dollar as the Bahraini dinar. In their $2.1 trillion worth of reserves, the Chinese hold approximately three times as many dollars as all other currencies combined.
Kathryn Jean Lopez at The Corner:
If true, is this what Fisk says it is? Bob Stein, a senior economist at First Trust Advisors, answers that he “doubt[s] even if true that it will have much influence on world dollar demand.” When asked if it warrants red-headline treatment, Stein says: “Not for econonomic reasons, but it sure does embarrass the current administration.”
Dan Perrin at Redstate:
President Obama’s and Congress’s obsession with spending more taxpayer dollars on the black hole known as health care will only increase the resolve of every country holding dollars.
President Obama is destroying the economic superpower status of the United States, and many sense that Obama’s trillion dollars in spending here and trillion dollars in spending there is accelerating it, but Congress and the White House will not listen.
This will be the real legacy of President Obama, a worthless currency, our international influence and power broken and the Olympics were the first visible sign — to which President Obama is oblivious.
Oh, I know, maybe Obama can give a speech about it, or go on a talk show or a Sunday News show or fly to a meeting and give a speech. The world will listen, they will believe, and then everything will be OK. Even better, he can appear on the cover of Men’s Health!
Meredith Jessup at Townhall
UPDATE: Rod Dreher