[Marxism] The demise of the dollar

Louis Proyect lnp3 at panix.com
Tue Oct 6 07:05:02 MDT 2009

The demise of the dollar

In a graphic illustration of the new world order, Arab states have 
launched secret moves with China, Russia and France to stop using the US 
currency for oil trading

By Robert Fisk

Tuesday, 6 October 2009
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.

The Americans, who are aware the meetings have taken place – although 
they have not discovered the details – are sure to fight this 
international cabal which will include hitherto loyal allies Japan and 
the Gulf Arabs. Against the background to these currency meetings, Sun 
Bigan, China's former special envoy to the Middle East, has warned there 
is a risk of deepening divisions between China and the US over influence 
and oil in the Middle East. "Bilateral quarrels and clashes are 
unavoidable," he told the Asia and Africa Review. "We cannot lower 
vigilance against hostility in the Middle East over energy interests and 

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. China uses more oil 
incrementally than the US because its growth is less energy efficient. 
The transitional currency in the move away from dollars, according to 
Chinese banking sources, may well be gold. An indication of the huge 
amounts involved can be gained from the wealth of Abu Dhabi, Saudi 
Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in 
dollar reserves.

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.

Brazil has shown interest in collaborating in non-dollar oil payments, 
along with India. Indeed, China appears to be the most enthusiastic of 
all the financial powers involved, not least because of its enormous 
trade with the Middle East.

China imports 60 per cent of its oil, much of it from the Middle East 
and Russia. The Chinese have oil production concessions in Iraq – 
blocked by the US until this year – and since 2008 have held an $8bn 
agreement with Iran to develop refining capacity and gas resources. 
China has oil deals in Sudan (where it has substituted for US interests) 
and has been negotiating for oil concessions with Libya, where all such 
contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 
10 per cent of the imports of every country in the Middle East, 
including a huge range of products from cars to weapon systems, food, 
clothes, even dolls. In a clear sign of China's growing financial 
muscle, the president of the European Central Bank, Jean-Claude Trichet, 
yesterday pleaded with Beijing to let the yuan appreciate against a 
sliding dollar and, by extension, loosen China's reliance on US monetary 
policy, to help rebalance the world economy and ease upward pressure on 
the euro.

Ever since the Bretton Woods agreements – the accords after the Second 
World War which bequeathed the architecture for the modern international 
financial system – America's trading partners have been left to cope 
with the impact of Washington's control and, in more recent years, the 
hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain 
to stay out of the euro in order to prevent an earlier move away from 
the dollar. But Chinese banking sources say their discussions have gone 
too far to be blocked now. "The Russians will eventually bring in the 
rouble to the basket of currencies," a prominent Hong Kong broker told 
The Independent. "The Brits are stuck in the middle and will come into 
the euro. They have no choice because they won't be able to use the US 

Chinese financial sources believe President Barack Obama is too busy 
fixing the US economy to concentrate on the extraordinary implications 
of the transition from the dollar in nine years' time. The current 
deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the 
Chinese Central Bank governor and other officials have been worrying 
aloud about the dollar for years. Their problem is that much of their 
national wealth is tied up in dollar assets.

"These plans will change the face of international financial 
transactions," one Chinese banker said. "America and Britain must be 
very worried. You will know how worried by the thunder of denials this 
news will generate."

Iran announced late last month that its foreign currency reserves would 
henceforth be held in euros rather than dollars. Bankers remember, of 
course, what happened to the last Middle East oil producer to sell its 
oil in euros rather than dollars. A few months after Saddam Hussein 
trumpeted his decision, the Americans and British invaded Iraq.

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