The Cretaceous Dollar

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What will happen to the US Dollar? Is it going “Dino-dinaro” on us, sinking in a tar pit of Middle Eastern economic intrigue that might see it become extinct as the banknote for buying and selling oil — the key commodity without which our modern civilization could not function?

Novosti (the Russian News and Information Agency) reports that Iran has launched its own commodities exchange for oil, petrochemicals and natural gas this 27 February 2008. The Islamic Republic’s Minister of Economy and Financial Affairs Davoud Danesh Jaafari will run this Oil Bourse. All transactions will be in Iranian rials — not dollars. After the US invaded and destroyed Saddam Hussein’s regime, Iran’s government of Ayatollahs has taken up his cause and is at the forefront of a growing movement of Middle Eastern oil producing nations and gulf emirates which might convert US petrol-dollars into petrol-euros.

The Iranian Oil Bourse is the first step and short of another violent regime change by US arms, what will President Bush or his replacement do to stop the petrol dollar from becoming the petrol-“Pterodactyl” in the museum of extinct currencies?

The euro looks captivating as a replacement for the dollar because it is, in a way, unattached, FTSE-loose and C.A.R.E. package free. The poor dollar is like someone who is married with children and obligations. Miss Euro can sashay seductively, vogue a higher value than the doughty dollar, because she is not bound to the heavy share of economic obligations that support and sustain the global economy. For instance, over 68 percent of the global international oil exchange is in US dollars. If the lovely euro found herself hitched to the dollar’s share of bear market and pregnant burdens, her post honeymoon value would plunge.

No one profits from a collapsing dollar, so I predict it will not collapse in 2008 or any time soon after. Even Iran “boursing” around only has a five percent share of the international oil market — hardly enough dollar-less dowry to tempt petrol companies to abandon petrol-dollars for rials of a potentially unstable fundamentalist Islamo-fascist regime.

Materialism, thy name is money, or so most believe. Yet, to me this worldly bankable unit of exchange stands as one of the most well sold illusions of life. A mode of currency only has value when you convince enough people to project value on it. The dollar may be weakening to levels not seen since the early 1970s but that does not mean it will soon plummet into complete and runaway collapse. Even its greatest enemies, Presidents Ahmadinejad of Iran and Hugo Chavez of Venezuela may soon abandon dollars for euros to sell their oil but they cannot as of yet afford to see the US economy tank, because it would catastrophically bring down oil prices and bankrupt OPEC members such as they.

China might threaten to dump US bonds for euros in 2008 more to test the waters to see the extent of economic waves only the threat might jiggle. If China were actually to start dumping its US bonds precipitously for the euro, it would throw the Chinese yuan out of its comfy nest of low value into the hard streets of real worth. Its value would double — say goodbye to the Chinese economic miracle!

The US dollar, weakened, unlikely to return as the penultimate world currency, yet green backs will continue to dominate world banks and currencies for another 15 to 20 years.

John Hogue
(29 February 2008)

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