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Uniqueness

The dollar remains as world currency, but is on the brink of being replaced

Chinadaily.com.cn

May 8, 2008 Thursday

STORM CLOUDS OVER DOLLAR SYSTEM The author is a researcher with China

Institute of Contemporary International Relations. After the World War II the US established

the reciprocal relationship between the US dollar and gold price by wielding its political,

economic and military might as well as its monopoly on gold, thus building up a de factoUS dollar system . Particularly noteworthy is that, after two oil crises, the US began running

"crude oil futures trading" on the New York Mercantile Exchange in 1983 in a bid to secure

oil consumption interests. The oil future market required the US dollar be used as the soletrading currency. The move established the " oil pillar" for the US dollar system. From then

on the US dollar became some sort of common language in the world and was circulated

around the globe easily, thanks to the lowest trading cost of the day. Most of the othercurrencies thus had to rely on the US dollar as the choice medium to link with one another.

The US dollar has become a currency "beyond the US"; while the dollar system became a

tool for the US to make money and practice hegemony around the world. Since the

September 11 incident and especially the start of the war in Iraq, the prices of oil and otherstrategic resources have been rising and left the US dollar's status as the unrivaled trading

currency in doubt. The oil -exporting countries in particular began to explore the feasibility

of replacing the US dollar with the euro or the Japanese yen. The " oil pillar" of the USdollar system is now in danger of toppling. The subprime crisis further exposed the defects

of the capitalist financial system of the US in addition to directly jeopardizing the market

foundation of the dollar system.During the 1970s the dollar nearly collapsed, as oil prices

surged and gold skyrocketed. The US used the New York Stock Exchange and its colossaltrade deficit to play the role of a global supplier of (circulating) capital to protect and

strengthen the dollar system. In this respect the global circulation of capital centered on theUS and in the form of the US dollar has become a basic prop for the dollar system to remain

standing.

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Internal Link:

Without the dollar, U.S. loses all global dominance

Dr. Bulent Gokay , Senior Lecturer in International Relations and, Director of European Studies

ProgrammeSPIRE, Keele University, 2004

The dollar hegemony is key to the future of American global dominance, in many respects as

significant if not more so, than the overwhelming military strength. And the Petrodollar has been

at the heart of the dollar hegemony since the early 1970s. Almost two-thirds of the world's currency reserves are kept in dollars,

because oil importers pay in dollars and oil exporters keep their reserves in the currency they are paid in. The entire global oil trade

is conducted in dollars. This means that everyone needs to keep dollars. This effectively provides the American

economy with an interest-free loan, as these dollars can be invested back into the U.S.A. with zero currency risk. This money is

not inactive; it is invested in dollar securities like US Treasury notes, stocks, mutual funds, and bonds. The US dollar's current

strength is supported by OPECs requirement that all OPEC oil sales be denominated in dollars.This was secured by an agreement between the US administration and Saudi Arabia, the largest OPEC oil producer. This had been determined inJune 1974 by Secretary of State Henry Kissinger, establishing the US-Saudi Arabian Joint Commission on Economic Cooperation. In 1975 OPEC

officially agreed to sell its oil only for dollars.

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2. Without U.S. power, conflicts would go nuclear

Zalmay Khalilzad, "Losing the Moment? The United States and the World After the Cold War,"

Washington Quarterly Reader, Order and Disorder after the Cold War (ed. Brad Roberts) 1995,p.60

In the Persian Gulf, U.S. withdrawal is likely to lead to an intensified struggle for regionaldomination. Iran and Iraq have, in the past, both sought regional hegemony. Without U.S.

protection, the weak oil-rich states of the Gulf Cooperation Council (GCC) would be unlikely toretain their independence. To preclude this development, the Saudis might seek to acquire,

perhaps purchase, their own nuclear weapons. If either Iraq or Iran controlled the region that

dominates the world supply of oil, it could gain a significant capability to damage the U.S. and

world economies. Any country that gained hegemony would have vast economic resources at itsdisposal that could be used to build military capability as well as gain leverage over the United

States and other oil-importing nations. Hegemony over the Persian Gulf by either Iran or Iraq

would bring he rest of the Arab Middle East under its influence and domination because of theshift in the balance of power. Israeli security problems would multiply and the peace process

would be fundamentally undermined, increasing the risk of war between the Arabs and the

Israelis. The extension of instability, conflict, and hostile hegemony in East Asia, Europe, and thePErsian Gulf would harm the economy of the United States even in the unlikely event that it was

able to avoid involvement in major wars and conflicts. Higher oil prices would reduce the U.S.

standard of living. Turmoil in Asia and Europe wold force major economic readjustment in theUnited States, perhaps reducing U.S. exports and imports and jeopardizing U.S. investments in

these regions. Given that total imports and exports are equal to a quarter of the U.S. gross

domestic product, the cost of necessary adjustments might be high. The higher level of turmoil in

the world would also increase the likelihood of the proliferation of weapons of mass destruction(WMD) and means of their delivery. Already several rogue states such as North Korea and Iran

are seeking nuclear weapons and long-range missiles. That danger would only increase if the

United States withdrew from the world. The result would be a much more dangerous world inwhich many states possessed WMD capabilities; the likelihood of their actual use would increase

accordingly. If this happened, the security of every nation in the world, including the United

States, would be harmed.

Extensions

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If the U.S. isnt in the oil market, the dollar will be replaced

No author given, Iran paper on real benefits of oil price rise, urges OPEC for singlecurrency, BBC Monitoring Middle East Political, Supplied by BBC Worldwide

Monitoring, December 21, 2007 Friday

In order for America to maintain its upper hand in the region, it is necessary for the region to be

in constant tension and crisis. America used the "fight against terrorism" [punctuations as

published here and throughout] as an excuse to launch an attack against the Middle East. After

toppling the former Iraqi regime, America justified its military presence and an increase in the oil

price by creating false crisis and security illusions in the region. If we study closely, we will find

out that only two countries benefit from an increase in oil price: Russia and America. These

countries are both major exporters of technology and commodities. America uses its hegemony

over Iraq's oil wells and sells more than 4 million oil barrels per day with a high price in order tocover the costs of its military action in Iraq whilst controlling the supply to Europe and selling

commodities and technologies with high prices back to the countries of the region. The high oil

price has an adverse effect on the neighbouring countries such as Turkey, Pakistan and African

countries and in this way America keeps its hegemony over these countries too. Therefore, in

effect America does not want Iraq's crisis and the so-called Iran's nuclear crisis to be over

because America loses its reasons to stay in the region and maintain its global hegemony. Under

such circumstances, our politicians and economists must remain vigilant. If we do not control our

economic policies and allow the cash flow in the society to grow, our country will face even

higher inflation and further irreparable damages. If God wills, the dear officials of our country

will start budgeting in Euros instead of dollars and continue to encourage OPEC to sell oil inEuros instead of dollars so that a logical balance between our buying and selling is achieved

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As a global hegemon, the United States leads the global market with the dollar

Dr. Bulent Gokay , Senior Lecturer in International Relations and, Director of European Studies

Programme

SPIRE, Keele University

Since the emergence of the United States as the dominant global superpower after 1945, the

hegemony of the US has rested on two unchallengeable pillars. First, the overwhelming US

military superiority over all other rivals; and second, the control of global economic markets

with the dominant role of the US dollar as reserve currency. Reserve currencies are held by

governments and institutions outside the country of issue and are used to finance international

economic transactions, including trade and the payment of debts. Reserve currency status is not

just an international status symbol. It brings international seigniorage, benefits for home

financial institutions, relaxation of the external constraint on macroeconomic policy, a greater

role for the issuer in international institutions, and the wider geopolitical consequences of

exercising currency hegemony. In the aftermath of the Second World War this wasunderstandable because the US dollar was backed up by gold. In 1971, US president Richard

Nixon took the dollar off the gold standard that has been agreed to at the Bretton Woods

Conference in 1944. Since 1971 the dollar has been an irredeemable currency, no longer defined

or measured in terms of gold. This removed the restraints on printing new dollars. The dollar has

become the worlds dominant currency and the core reserve asset of central banks all over the

world. It has replaced gold as an international currency. Central banks around the world have

built up large reserves of dollar. Those dollars flow back into the US banking system in the form

of investments in US dollar-denominated assets. The dollar hegemony is key to the future of

American global dominance, in many respects as significant if not more so, than the

overwhelming military strength. And the Petrodollar has been at the heart of the dollar hegemony

since the early 1970s. Almost two-thirds of the world's currency reserves are kept in dollars,

because oil importers pay in dollars and oil exporters keep their reserves in the currency they are

paid in.