|2003-04-28 16:46, by Julie Solheim-Roe|
Flemming has had a lot of attention of his synopsis of the article by Cóilín Nunan: "Oil, Currency and the War on Iraq":
"Fascinating explanation of some major economic mechanisms involving dollars and euros and oil. A very big reason that the United States is such an economically and militarily dominating country is apparently that U.S. dollar is the de facto world reserve currency."The question seems to be, what would happen IF the Euro became the only currency for oil? Hi Pakistan on-line has a main headline today giving a further insight on the issue:
"LONDON: The problem with American power is not that it's American. Most states with the resources and opportunities the US possesses would have done far worse.
The author goes on to say that the paradox of the reasoning for small states to oppose a conglomerate power, needs to be re-evaluated. He summizes, in the end:
The problem is that one nation, effectively unchecked by any other, can, if it chooses, now determine how the rest of the world will live. Eventually, unless we stop it, it will use this power. So far, it has merely tested its new muscles.
Were it not for a monumental economic distortion, the US economy would, by now, have all but collapsed. ... It survives only because conventional measures do not apply: the rest of the world has granted it an unnatural lease of life.
Almost 70 per cent of the world's currency reserves - the money that nations use to finance international trade and protect themselves against financial speculators - takes the form of US dollars. The dollar is used for this purpose because it is relatively stable, it is produced by a nation with a major share of world trade, and certain commodities, in particular oil, are denominated in it, which means that dollars are required to buy them.
The US does very well from this arrangement. In order to earn dollars, other nations must provide goods and services to the US. When commodities are valued in dollars, the US needs do no more than print pieces of green paper to obtain them: it acquires them, in effect, for free. Once earned, other nations' dollar reserves must be invested back into the American economy. This inflow of money helps the US to finance its massive deficit. The only serious threat to the dollar's international dominance at the moment is the euro.
Next year, when the European Union acquires 10 new members, its gross domestic product will be roughly the same as that of the US, and its population 60 per cent bigger. If the euro is adopted by all the members of the union, which suffers from none of the major underlying crises afflicting the US economy, it will begin to look like a more stable and more attractive investment than the dollar. Only one further development would then be required to unseat the dollar as the pre-eminent global currency: nations would need to start trading oil in euros. Until last week, this was already beginning to happen.
...Last year, Javad Yarjani, a senior official at Opec, the oil producers' cartel, put forward several compelling reasons why his members might one day start selling their produce in euros. Europe is the Middle East's biggest trading partner it imports more oil and petrol products than the US, it has a bigger share of global trade and its external accounts are better balanced. One key tipping point, he suggested, could be the adoption of the euro by Europe's two principal oil producers: Norway and the United Kingdom, whose Brent crude is one of the "markers" for international oil prices.
"This might," Yarjani said, "create a momentum to shift the oil pricing system to euros." If this happens, oil importing nations will no longer need dollar reserves to buy oil. The demand for the dollar will fall, and its value is likely to decline. As the dollar slips, central banks will start to move their reserves into safer currencies such as the euro and possibly the yen and the yuan, precipitating further slippage. The US economy, followed rapidly by US power, could then be expected to falter or collapse.
"To defend UK sovereignty - and that of the rest of the world - from the US, the British must yield some of their sovereignty to Europe. That they have a moral duty to contest the developing power of the US is surely evident. That they can contest it by no other means is equally obvious. Those British who are concerned about American power must abandon their opposition to the euro."