DOLLARS,
THE EURO AND WAR IN IRAQ
Created;
18-04-03, Changed; 18/08/09, 14/09/09
The dollar is the world reserve currency. This gives a
huge subsidy to the US economy because if a country wants to
hold lots of dollars in reserve they must supply the US
with goods and services in return for those dollars. In return the
US creates a bit more credit. The more dollars there are
circulating outside the US, the more goods and services the US
has imported virtually for free. This is how the US
manages to run a huge trade deficit year after year without
apparently any major economic consequences. No other
country can run such a large trade deficit with impunity. It is in
effect getting a massive interest-free loan from the rest
of the world.
One of Europe's primary objectives, if not the primary
objective, of setting up the Euro was to try and get
some of this free lunch for Europe. If the Euro became a
major reserve currency, or better still replaced the
dollar as the major reserve currency, then Europe too
could get something for nothing.
This would be a disaster for the US. Not only would they
lose their subsidy, which has been increasing in size
and in importance to American economic well being as the
years have gone by, but countries switching to
Euro reserves from dollar reserves would start spending
their dollars in the US. In other words the US would
have to start paying its debts to other countries. As
countries converted their dollar assets into Euro assets the
US property and stock market bubbles would, without doubt,
burst. The Federal Reserve would no longer be
able to print more money to reflate the bubble as it is
currently openly considering doing,
There is, however, one major obstacle to this happening:
OIL! Oil is of course by far the most important
commodity traded internationally, and if you want to buy
oil on the international markets you usually have to
have dollars.
Until recently all OPEC countries agreed to sell their oil
for dollars only. This meant that oil importing
countries, like Japan, needed to hold dollar reserves in
order to be able to buy oil. So long as this remained the
case, the Euro was unlikely to become the major reserve
currency. There is not a lot of point to stockpiling
Euros if every time you need to buy oil you have to change
them into dollars. But in November 2000 Iraq
switched to the euro, with potentially perilous
consequences for the US. Only one country has the right to
print dollars: the US! If OPEC were to decide to accept
euros only for its oil, then American economic
dominance would be over. Not only would Europe not need
dollars anymore, but Japan which imports over
80% of its oil from the Middle East would have to convert
most of its dollar assets to Euro assets (Japan is of
course the major subsidiser of the US). The US on the
other hand, being the world's largest oil importer would
have to acquire Euro reserves, i.e. it would have to run a
trade surplus. The conversion from trade deficit to
trade surplus would have to be done at a time when its
property and stock market prices were collapsing and
its own oil supplies were contracting. It would be a very
painful conversion; potentially disastrous.
The purely economic argument for OPEC converting to the
Euro, at least for a while, seem very strong. The
Eurozone does not run a huge trade deficit like the US,
nor is it heavily indebted to the rest of the world like
the US. Nearly everything you can buy for dollars you can
also buy for Euros. Furthermore, if OPEC were to
convert their dollar assets to Euro assets and then
require payment for oil in euros, their assets would
immediately increase in value. Also, since oil importing
countries would be forced to convert their reserves
into euros, whose price would therefore be driven up. OPEC
could then at some later date back some other
currency, maybe the dollar again, and again make huge
profits. This would offer a virtually inexhaustible
source of profit for OPEC.
But of course it would not be a purely economic decision.
The Eurozone countries do not threaten Middle
Eastern countries militarily as the US does.
One article, written at the time the decision was made,
claimed it made no financial sense and would cost Iraq
millions. According to this "expert" the decision to
convert was made by people who "are not experts, they
are not central bankers, they are not even oil men". At
the time the article was written, the euro was worth 82
US cents. It is now worth about $1.05. So on economic
grounds alone, the Iraqi decision has been a huge
success (the $10 billion Iraqi fund at the UN, mentioned
in the article, has apparently also since been
converted). There may however be military consequences to
it. The economic threat to the US may be
influencing it in its belligerent stance towards Iraq.
One other OPEC country has been talking publicly about
possible conversion since 1999: Iran. And of course
it has since been included in the "axis of evil".
So, as Feasta sees it, this threatened war does not serve
continental Europe's growth interests at all. But a far
better reason for opposing the war is that it is a blatant
case of mass murder for profit.
Further information about this matter can be found at:
http://www.praesentia.us/archives/2003_01.html#000227
http://www.praesentia.us/archives/2003_01.html
http://www.rferl.org/nca/features/2000/11/01112000160846.asp
http://www.ratical.org/ratville/CAH/RRiraqWar.html
This story is based on material sent to
SANE (South African New Economics group) by Richard Douthwaite's
organisation FEASTA in Ireland. Please note, though,
that FEASTA cannot endorse its accuracy and does not have
an official position on the Iraqi confrontation. See the websites above.
Also see http://moneymyths.org.uk