The Demise of the Dollar

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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 security."

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.

Read
the rest of the article

October
12, 2010

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