Premature dance on dollar's grave
Robert Fisk’s article in Britain’s Independent newspaper, embracing theories about the origins of the Gulf Wars, unnamed sources and a flawed analysis of how global trade works, was a step too far for the respected Middle East correspondent.
Secret meetings? Transition from the dollar by 2018? Evidence?
There is no secret about the desire of Russia, China and other countries to reduce their dependence on the dollar. Russian President Dmitry Medvedev openly called for an alternative to the dollar at the G20 meeting in London in April. They’ve pushed the topic, along with France and Brazil among others, on the sidelines of every meeting since.
Iran has long been pushing for an international oil bourse that accepts payment in currencies other than dollars since at least 2006. Russia is opening an oil products derivative exchange in St Petersburg with much the same aim.
Lifeblood and virus
Fisk links the second Gulf War with US desire to keep the oil trade in dollars. That story is a totem of the anti-war, indie media. http://www.informationclearinghouse.info/article1554.htm They may be right. It’s just odd to see their clothes nicked by an old school newspaper.
If a hedge fund had wanted to profit from planting a story, it couldn’t have done better than this: The substance of the story is not new. The global financial crisis was transmitted through the dollar, which is simultaneously lifeblood and virus to the world economy. Spice up the story with geopolitics, the anti war movement and some conspiracy theories, however, and you can move the markets long enough to sell the dollar before the story’s printed, then buy it back cheap.
Sure enough, the dollar moved back up when the Saudi central bank governor refuted the central plank of Fisk’s article, denying any talks involving oil producers and dumping the dollar. He would say that, wouldn’t he? Sure, a central bank governor certainly would not admit to such talks even if they had happened.
Still, it must be a bit frustrating for the grown up financial media when a story they report day in, day out, only grabs world headlines when it gets reported by a non-financial journalist. That’s because the Independent has used the age old newspaper technique. Don’t let the facts stand in the way of a good story.
Pact with the devil
Since this crisis began, and the dollar surprised investors and governments by strengthening even as the US economy slowed sharply, the obvious question has been: when will the dollar falter?
Fisk’s territory is the Middle East, however. He envisages the oil producers unilaterally deciding to ditch the dollar, replacing it with a basket of currencies, from gold, the yen, yuan and euro to a new Gulf currency.
He fails to indicate who would manage the basket and assumes the birth of a new currency would be as painless as that of the euro in 2000. And mystically, Fisk predicts “an extraordinary transition from dollar markets in nine years,” with no further information.
Fisk argues the dollar’s future – and that of the US economy – depends on pricing oil in dollars. But the two biggest holders of dollar reserves are China and Japan. Both are energy importers. If the dollar truly is evil, they’re in a pact with the devil, earning dollar profits on their exports to the US, then lending the money back so Americans can buy even more goods.
The dollar is their friend in another way. It is the most liquid and available currency. That’s why it’s used to buy and sell commodities. You can always lay your hands on the green stuff. Trading in other currencies could well push up the price of oil.
The dollar may well decline, along with the status of the US economy, as argued on RT in October 2008.
But it’s a matter for the long term. Sterling remained the world currency for half a century after the US eclipsed the UK.
Mark Gay, RT