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| Volume XI, Spring 2004, Number 1 |
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| EXCERPT: Petroeuros: A Threat to U.S. Interests in the Gulf? |
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| Robert Looney |
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Dr. Looney is a professor of economics at the Naval Postgraduate School, Monterey, California.
Almost 70 percent of the world's
international currency reserves
– the money that nations use to
finance international trade and protect themselves against financial speculators -- takes the form of U.S. 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 financial assets, and certain commodities, in particular oil, are denominated in it. The net result is a large diversified demand for dollars.1
Still, the use of the U.S. dollar as an international currency has been declining gradually for over 30 years. In the past several years, this reduction in the share of dollar reserves has accelerated with the decline in the value of the dollar and the rise of the euro as a legitimate contender for reserve-currency status. Traditionally, speculation over movements in the dollar's value has focused on technical issues surrounding such aspects of the economy as the sustainable size of the country's current-account deficit and the relative attractiveness of U.S. financial markets.2 While these factors are still argued at length in the financial press, the scope of the debate has broadened to include general aspects of policy such as the U.S. unilateral approach to foreign affairs, and decisions concerning the war on terrorism and the war in Iraq.3
In fact, many websites4 are currently peddling the theory that the United States invaded Iraq because in 2000 Saddam Hussein had switched from dollars to the euro as the medium of exchange for purchasing Iraqi oil. The invasion was largely undertaken to discourage OPEC members and other oil-exporting countries from following suit. While many of these sites vary in detail, the logic of their arguments is broadly similar:
1 George Bonboit, "The Bottom Dollar," The Guardian, April 22, 2003, http://www.guardian.co.uk/comment/story/0,3604,940757,00.html.
2 Cf. Stephen L. Jen, "Tracking the Final Phase of the Dollar Correction," Morgan Stanley Global Economic Forum, October 20, 2003.
3 Hazel Henderson, "Iraq, the Dollar and the Euro," The Globalist, June 2, 2003, http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=3193.
4 See for example: http://www.pressurepoint.org/pp_its_the_oil.html.
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