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By Coilin Nunan of FEASTA: The Foundation for the Economics of
Sustainability
In November 2000, Saddam Hussein made a momentous decision: he decided that
henceforth Iraq would sell its oil on the international market for euros
rather than dollars. In doing so, Baghdad branded the dollar a tool of US
hegemony.
Is there in fact some validity in this claim and could Iraq’s decision help
explain the current policy divisions between the US and Eurozone countries,
France and Germany, on Iraq?
At present, the dollar is the de facto world reserve currency, giving the US
an inherent economic advantage by allowing it to import far more than it
exports. The need for dollars outside the US to buy oil, repay IMF debts and
carry out international trade means that foreign countries must supply the
US with extra goods and services to acquire dollars which the US issues at
virtually no cost. It is the demand for dollars which enables the US to live
beyond its means, currently importing nearly 50% more than it exports.
The euro, however, now provides a credible alternative to the dollar. But
even if the dollar only had to share the status of world reserve currency
with the euro, the economic consequences for the US would be extremely
serious, including large dollar and stock-market devaluations.
There is one major obstacle to this happening: oil. For many oil-importing
countries like Japan, there is no point in converting their huge dollar
reserves to euros if the only currency that can be used to buy oil is the
dollar.
Maintaining international oil trade in dollars is therefore crucial to US
economic health. But ‘axis of evil’ member and major oil exporter Iran not
only welcomed Iraq’s euro move, but is considering doing likewise. OPEC
member Venezuela also welcomed Baghdad’s move and has established barter
deals for trading its oil with 13 different countries and encouraged OPEC to
set up systems of electronic barter. Even major oil producer Russia welcomed
the Iraqi move and OPEC itself has said it is considering the benefits of
selling its oil for euros.
If part of the motivation for the proposed war against Iraq and the coup
attempt in Venezuela is a power struggle between two competing currencies,
then this underlines the importance of Feasta’s proposals for reforming the
international monetary system and introducing a neutral world currency for
all international trade.
Further reading: http://www.feasta.org/documents/papers/oil1.htm
The dollar hegemony story took shape on the Feasta e-mail discussion list
which allows members and friends to share information and discuss new ideas.
You can subscribe to this list by sending an e-mail
mailto:[email protected]
Sustainability
In November 2000, Saddam Hussein made a momentous decision: he decided that
henceforth Iraq would sell its oil on the international market for euros
rather than dollars. In doing so, Baghdad branded the dollar a tool of US
hegemony.
Is there in fact some validity in this claim and could Iraq’s decision help
explain the current policy divisions between the US and Eurozone countries,
France and Germany, on Iraq?
At present, the dollar is the de facto world reserve currency, giving the US
an inherent economic advantage by allowing it to import far more than it
exports. The need for dollars outside the US to buy oil, repay IMF debts and
carry out international trade means that foreign countries must supply the
US with extra goods and services to acquire dollars which the US issues at
virtually no cost. It is the demand for dollars which enables the US to live
beyond its means, currently importing nearly 50% more than it exports.
The euro, however, now provides a credible alternative to the dollar. But
even if the dollar only had to share the status of world reserve currency
with the euro, the economic consequences for the US would be extremely
serious, including large dollar and stock-market devaluations.
There is one major obstacle to this happening: oil. For many oil-importing
countries like Japan, there is no point in converting their huge dollar
reserves to euros if the only currency that can be used to buy oil is the
dollar.
Maintaining international oil trade in dollars is therefore crucial to US
economic health. But ‘axis of evil’ member and major oil exporter Iran not
only welcomed Iraq’s euro move, but is considering doing likewise. OPEC
member Venezuela also welcomed Baghdad’s move and has established barter
deals for trading its oil with 13 different countries and encouraged OPEC to
set up systems of electronic barter. Even major oil producer Russia welcomed
the Iraqi move and OPEC itself has said it is considering the benefits of
selling its oil for euros.
If part of the motivation for the proposed war against Iraq and the coup
attempt in Venezuela is a power struggle between two competing currencies,
then this underlines the importance of Feasta’s proposals for reforming the
international monetary system and introducing a neutral world currency for
all international trade.
Further reading: http://www.feasta.org/documents/papers/oil1.htm
The dollar hegemony story took shape on the Feasta e-mail discussion list
which allows members and friends to share information and discuss new ideas.
You can subscribe to this list by sending an e-mail
mailto:[email protected]