Robert Fisk on the demise of the dollar.

Maybe it is more like the dollar doldrums as the currency weakens against many other currencies but it is probably early to announce its demise, that will be a slow and longer term process but inevitable it would seem.

As the dollar weakens it will actually help some US companies that have a lot of sales overseas, even companies such as MacDonalds since when sales in other currencies are translated back into dollars they will purchase more dollars. Also, U.S. exporters will benefit as well since their goods will be cheaper.

China and the Middle East have a great deal of their wealth tied up in US dollars. Given the huge debt of the US and the creation of so much new money these countries are beginning to diversify their currency holdings and also buying gold, part of the reason gold is now over a thousand dollars an ounce. Trading oil based on a new currency will just be another strand in the trend away from the dollar. Although this will give the U.S. somewhat less control over the global economy, the US is still the paramount millitary power and no doubt can still hold sway for some time to come. However, overextending itself in wars that are arguably quite unessential to U.S. basic interests can only hasten its demise as the world's superpower.

As the article mentions when Iraq decided to sell oil in Euros rather than dollars it was invaded. However the US will not invade China, Russia, etc because they will sell oil and buy oil in non-dollar currencies!

""""

The demise of the dollar

By Robert Fisk

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars.

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 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. ""

UPDATE: There is a response to Fisk in Counterpunch by Whitney. Whitney sees an upcoming decline in the stock market which will result in the value of the dollar increasing. However in the longer term he agrees with Fisk that the dollar will decline in importance:

""""Reports of the dollar's demise are greatly exaggerated. The dollar may fall, but it won't crash. And, in the short-term, it's bound to strengthen as the equities market reenters the earth's gravitational field after a 6 month-long ride through outer-space. The relationship between falling stocks and a stronger buck is well established and, when the market corrects, the dollar will bounce back once again.....

The real reason the dollar will lose its role as the world's reserve currency is because US markets, which until recently provided up to 25 percent of global demand, are in sharp decline. Export-dependent nations--like Japan, China, Germany, South Korea--already see the handwriting on the wall. US consumers are buried under a mountain of debt, which means that their spending-spree won't resume anytime soon. On top of that, unemployment is soaring, personal wealth is falling, savings are rising, and Washington's anti-labor bias assures that wages will continue to stagnate for the foreseeable future. Thus, the American middle class will no longer be the driving force behind global consumption/demand that it was before the crisis. Once consumers are less able to buy new Toyota Prius's or load up on the latest China-made widgets at Walmart, there will be less incentive for foreign governments and central banks to stockpile greenbacks or trade exclusively in dollars.""