Abandoning the Dollar

[eagleseven]

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Gulf states have held secret talks with Russia, China, Japan and France to replace the US dollar with a basket of currencies in the trade of oil, the UK's Independent newspaper says.

The report by Robert Fisk, the newspaper's Middle East correspondent, was published on Tuesday and cited unidentified sources in Gulf Arab states and Chinese banking sources in Hong Kong.

Fisk said the proposal was for trade in crude oil to move over nine years to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for countries in the Gulf Co-operation Council, including Saudi Arabia, the United Arab Emirates, 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 report said.

Oh shit...this will be very bad for the US economy.

[JohnDoe]

Revaluing crude oil would not be much of a deal when you can instantaneously convert currencies. Besides, a currency basket based on *gold*? Please. Most of the news sources have agreed this was fake.

[eagleseven]

Revaluing crude oil would not be much of a deal when you can instantaneously convert currencies. Besides, a currency basket based on *gold*? Please. Most of the news sources have agreed this was fake.
Why would al-Jazeera lie? What sources are you reading?

[JohnDoe]

This story traces to the Independent not al-Jazeera. Read your sources more carefully. And the paper doesn't have to lie, just be lied to. Lots of reasons to manipulate the currency market.





JohnDoe added to this post, 3 minutes and 28 seconds later...

Normally I think Mish is a bit on the nutty side but this article is spot on: To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

[hubcap]

One unfortunate effect of the loose fiscal policy of the Fed and the US Government is the devalueing of the dollar. It comes as no surprise that many of the worlds nations want a more stable currency to use as a baseline for trading.

The fact that the Fed has simply created trillions of new dollars by firing up the printing presses demands a devalueing of the dollar.

[Pandemonium]

The issue of the devaluation of the us dollar and the movement away from it being a reserve currency has been around for a long time now. I remember reading before the Iraq war that the Iraqis changed their reserve currency from the dollar to the euro. The U.S. probably invaded Iraq to scare the other opec nations into submission. Venezuela has also changed their reserve currency from the dollar to the euro but they have backing from China. No war on terror in the socialist paradise. I remember Iran doing the same. This has lead to the recent propaganda in the media about WMDs and Iran. Most credible sources and whistle blowers state Iran does not have the capabilities of nukes and others. Hey, the media of the future get their information straight from the propaganda ministry.

One unfortunate effect of the loose fiscal policy of the Fed and the US Government is the devalueing of the dollar. It comes as no surprise that many of the worlds nations want a more stable currency to use as a baseline for trading.

The fact that the Fed has simply created trillions of new dollars by firing up the printing presses demands a devalueing of the dollar.

It is interesting that you mention the Fed. One must remember the Fed is a privately owned institution run by the share holders which are comprised of major American and international banks. Can anybody say "Conflict of interest."? The Fed should not involve itself in fiscal policy. Their function revolves around monetary policy. The majority U.S. government's debt is a direct result in borrowing from the Fed. Maybe this is why the Fed involves itself in fiscal policy. I wonder what is collateral on the debt. Perhaps, person's bonds in the U.S.? Wouldn't that be amusing? The Fed becoming the fiduciary agent of the populace of the U.S.

[JohnDoe]

One unfortunate effect of the loose fiscal policy of the Fed and the US Government is the devalueing of the dollar. It comes as no surprise that many of the worlds nations want a more stable currency to use as a baseline for trading.

The fact that the Fed has simply created trillions of new dollars by firing up the printing presses demands a devalueing of the dollar.

As opposed to the valuation destroyed in the crash, and the fact that its all sitting in reserves right now. Not saying inflation is not a concern but devaluation is silly. Now I remember why I don't use this forum; everyone is a permabear.

[RedIrish]

As I have stated on other threads. This is not new news. This is an ongoing debate in the financial world, and eventually a new currency of one type or another will rise up to replace the greenback. For a while people thought that currency would be the euro, but it has not caught fire, and another option may yet arise from somewhere unexpected.

And the world will continue to turn, the sun will rise, the sky will not fall. Life goes on. It just doesn't always revolve around you.

for more opinion on this debate -
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[SirJac]

China has been calling for a new reserve currency for a while now, though last I heard they were pushing to expand SDRs to fill the role. In any case, the danger of a change in reserve currencies is significant enough that it shouldn't be taken lightly. It's because of its status that the rest of the world is holding on to $3.4 trillion in US bonds and $5.4 trillion in US dollars.

A change in reserves would mean there would be no longer any incentive for world governments to hold on to these and instead would convert them to whatever new reserve currency replaced the dollar. If everyone becomes a seller of US bonds, major inflation will certainly occur and the US would be forced to hike interest rates to find new buyers. The double hit of higher interest rates and inflation would do some real damage to the US economy.

Also because of the sheer size of the foreign holdings, they are extremely sensitive to devaluation of the US dollar. Every 1% the US dollar drops costs the world $88 billion. No wonder there is talk about replacing the dollar with a more stable reserve currency. When the inflationary effects of the US stimulus spending kicks in, there will certainly be even more pressure around the world to replace the dollar.

[JohnDoe]

China has been calling for a new reserve currency for a while now, though last I heard they were pushing to expand SDRs to fill the role. In any case, the danger of a change in reserve currencies is significant enough that it shouldn't be taken lightly. It's because of its status that the rest of the world is holding on to $3.4 trillion in US bonds and $5.4 trillion in US dollars.

A change in reserves would mean there would be no longer any incentive for world governments to hold on to these and instead would convert them to whatever new reserve currency replaced the dollar. If everyone becomes a seller of US bonds, major inflation will certainly occur and the US would be forced to hike interest rates to find new buyers. The double hit of higher interest rates and inflation would do some real damage to the US economy.

Also because of the sheer size of the foreign holdings, they are extremely sensitive to devaluation of the US dollar. Every 1% the US dollar drops costs the world $88 billion. No wonder there is talk about replacing the dollar with a more stable reserve currency. When the inflationary effects of the US stimulus spending kicks in, there will certainly be even more pressure around the world to replace the dollar.

As long as countries want to be export nations, if they want net exports to the US, they will end up owning dollars. Until China wants to give up its way to support its economy by exporting everything in the world to the US, the dollar is in no danger what so ever.

[deinotes]

Revaluing crude oil would not be much of a deal when you can instantaneously convert currencies. Besides, a currency basket based on *gold*? Please. Most of the news sources have agreed this was fake.
What sources ?
Last i heard robert fisk was still backing up his story.
Sure all the countries involved are saying they are not involved in the meetings but that is expected if they where or where not involved in those meetings they have all a vested interest with the us.
But the fact is that for some time there are stories floating around that at least Russia ,china and iran are moving away from the dollar and moving into gold and other currencies.

[JohnDoe]

What sources ?
Last i heard robert fisk was still backing up his story.
Sure all the countries involved are saying they are not involved in the meetings but that is expected if they where or where not involved in those meetings they have all a vested interest with the us.
But the fact is that for some time there are stories floating around that at least Russia ,china and iran are moving away from the dollar and moving into gold and other currencies.

I mean everyone who actually analyzes the story, guess I should clarify that. This shit happens in the forex news circles all the time, for all sorts of currencies. Its all a game to move currency positions and gain diplomatic advantages. None of it should be taken very seriously.

[Causa Mortis]

China has been calling for a new reserve currency for a while now, though last I heard they were pushing to expand SDRs to fill the role. In any case, the danger of a change in reserve currencies is significant enough that it shouldn't be taken lightly. It's because of its status that the rest of the world is holding on to $3.4 trillion in US bonds and $5.4 trillion in US dollars.

You're assuming that the US significantly benefits from being the world's reserve currency. I would challenge that assumption.

What benefits are derived from the US being the world's reserve currency? A quarter point real interest rate discount? Its not significant, it is the root cause of many imbalances in the domestic economy, and it complicates monetary policy decisions.

It has some benefits, but its at the root of dollar's current state of over-valuation, which is a) discouraging savings by making foreign goods cheaper than they would be under flexible exhcnage ranges b) harming exporters c) exacerbating income inequality and d) because of its impacts on savings and exports, probably slowing contributions to capital and thus economic growth.

Also, I have seen a number of (credible) arguments suggesting that the massive excess of capital pouring into the country from Asia is precisely what produced the housing imbalances from 2001-2007. Its not the whole story, but its part of it.



A change in reserves would mean there would be no longer any incentive for world governments to hold on to these and instead would convert them to whatever new reserve currency replaced the dollar. If everyone becomes a seller of US bonds, major inflation will certainly occur and the US would be forced to hike interest rates to find new buyers. The double hit of higher interest rates and inflation would do some real damage to the US economy.

Risk adjusted rates of return don't vary significantly across asset classes. If the Chinese sold all their bonds at once there would likely be a temporary drop in prices, but it wouldn't last. The Chinese would have to buy another form of asset, which would depress risk adjusted rates of return on that asset relative to US bonds. There would then be a shift away from whatever the Chinese bought and a shift towards US bonds among those who purchased assets on the basis of risk adjusted rates of return (ie everyone besides central banks).

Additionally, the Chinese won't dump their holdings of dollars for two reasons:
1. They have a pegged exchange rate. This robs them of their ability to dump dollars because they have to buy them to avoid natural appreciations of their currency.
2. They've kept the exchange rate at an artificially very low level because its in their interest to do so.





Causa Mortis added to this post, 48 minutes and 27 seconds later...

What sources ?
Last i heard robert fisk was still backing up his story.
Sure all the countries involved are saying they are not involved in the meetings but that is expected if they where or where not involved in those meetings they have all a vested interest with the us.
But the fact is that for some time there are stories floating around that at least Russia ,china and iran are moving away from the dollar and moving into gold and other currencies.

Russia has never really been that intertwined with the dollar. And, outside of petrodollars, Iran has never really been that intrigued by the dollar either.

China is the only major influence on the valuation of the dollar that you mention. And they won't dump the currency unless they wish to halt their robust growth.

[Corbu]

You're assuming that the US significantly benefits from being the world's reserve currency. I would challenge that assumption.

What benefits are derived from the US being the world's reserve currency? A quarter point real interest rate discount? Its not significant, it is the root cause of many imbalances in the domestic economy, and it complicates monetary policy decisions.

It has some benefits, but its at the root of dollar's current state of over-valuation, which is a) discouraging savings by making foreign goods cheaper than they would be under flexible exhcnage ranges b) harming exporters c) exacerbating income inequality and d) because of its impacts on savings and exports, probably slowing contributions to capital and thus economic growth.

Also, I have seen a number of (credible) arguments suggesting that the massive excess of capital pouring into the country from Asia is precisely what produced the housing imbalances from 2001-2007. Its not the whole story, but its part of it.

Risk adjusted rates of return don't vary significantly across asset classes. If the Chinese sold all their bonds at once there would likely be a temporary drop in prices, but it wouldn't last. The Chinese would have to buy another form of asset, which would depress risk adjusted rates of return on that asset relative to US bonds. There would then be a shift away from whatever the Chinese bought and a shift towards US bonds among those who purchased assets on the basis of risk adjusted rates of return (ie everyone besides central banks).

Additionally, the Chinese won't dump their holdings of dollars for two reasons:
1. They have a pegged exchange rate. This robs them of their ability to dump dollars because they have to buy them to avoid natural appreciations of their currency.
2. They've kept the exchange rate at an artificially very low level because its in their interest to do so.

Russia has never really been that intertwined with the dollar. And, outside of petrodollars, Iran has never really been that intrigued by the dollar either.

China is the only major influence on the valuation of the dollar that you mention. And they won't dump the currency unless they wish to halt their robust growth.

I agree with much of what you say, admittedly finance and economics are my weak areas. I believe intrinsically that impact from any change away from the dollar would only be a short term negative. Long term I think it would actually strengthen the dollar and place it back on par with the British Pound.

[JohnDoe]

China is the only major influence on the valuation of the dollar that you mention. And they won't dump the currency unless they wish to halt their robust growth.

This is pretty much what it comes down to for any near term serious devaluation of the dollar. Our fate is China's fate in many ways.

[KEM10]

It is interesting that you mention the Fed. One must remember the Fed is a privately owned institution run by the share holders which are comprised of major American and international banks.

Where'd you get this info? I am positive that the FED is a private group that is nominated by the president and then voted on by the senate. The reason the banks are involved are because it deals directly with the banks and bank owners have a good habit of not running them fiscally solvent (skip all jokes about the current depression, faulted loans that aren't paid back in mass means the banks themselves would also have to fault). I also doubt Dr. Bernanke (the head chair) was ever employed in a bank.

The reason they printed money was because it would increase the movement of the money since there was more out there. More money on the market means they also had to lower interest rates (which they did) so they could force consumer spending to get us out of the depression faster with less loss of jobs.

However, unless you study econ all you will get out of it is they are lowering the strength of the dollar. How about when they destroy money, are they also increasing inflation?

[lurk]

Where'd you get this info?
There is information about the organization of the Federal Reserve here (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)

[KEM10]

That's where I got my info, it just doesn't match up with what he said. It sounds like the babbling of Ron Paul's new book


EDIT: I should also note that I am studying econ in school and the first year you learn the ins and outs of the Fed and why they do what they do.

[Causa Mortis]

How about when they destroy money, are they also increasing inflation?

The act of decreasing the money supply is, ceterus paribus, deflationary.

[lurk]

Here (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) is an interesting investigation into a couple of claims that the Fed is secretly owned by private, foreign interests. It includes a nice overview of the organization of the NY Fed and, by inference, the other regional Fed banks.