Wednesday, March 28, 2012

10 Reasons Why The Reign Of The Dollar As The World Reserve Currency Is About To Come To An End

The following are 10 reasons why the reign of the dollar as the world reserve currency is about to come to an end....
#1 China And Japan Are Dumping the U.S. Dollar In Bilateral Trade
A few months ago, the second largest economy on earth (China) and the third largest economy on earth (Japan) struck a deal which will promote the use of their own currencies (rather than the U.S. dollar) when trading with each other.  This was an incredibly important agreement that was virtually totally ignored by the U.S. media.  The following is from a BBC report about that agreement....
China and Japan have unveiled plans to promote direct exchange of their currencies in a bid to cut costs for companies and boost bilateral trade.
The deal will allow firms to convert the Chinese and Japanese currencies directly into each other.
Currently businesses in both countries need to buy US dollars before converting them into the desired currency, adding extra costs.
#2 The BRICS (Brazil, Russia, India, China, South Africa) Plan To Start Using Their Own Currencies When Trading With Each Other
The BRICS continue to flex their muscles.  A new agreement will promote the use of their own national currencies when trading with each other rather than the U.S. dollar.  The following is from a news source in India....
The five major emerging economies of BRICS -- Brazil, Russia, India, China and South Africa -- are set to inject greater economic momentum into their grouping by signing two pacts for promoting intra-BRICS trade at the fourth summit of their leaders here Thursday.
The two agreements that will enable credit facility in local currency for businesses of BRICS countries will be signed in the presence of the leaders of the five countries, Sudhir Vyas, secretary (economic relations) in the external affairs ministry, told reporters here.
The pacts are expected to scale up intra-BRICS trade which has been growing at the rate of 28 percent over the last few years, but at $230 billion, remains much below the potential of the five economic powerhouses.
#3 The Russia/China Currency Agreement
Russia and China have been using their own national currencies when trading with each other for more than a year now.  Leaders from both Russia and China have been strongly advocating for a new global reserve currency for several years, and both nations seem determined to break the power that the U.S. dollar has over international trade.
#4 The Growing Use Of Chinese Currency In Africa
Who do you think is Africa's biggest trading partner?
It isn't the United States.
In 2009, China became Africa's biggest trading partner, and China is now aggressively seeking to expand the use of Chinese currency on that continent.
A report from Africa’s largest bank, Standard Bank, recently stated the following....
“We expect at least $100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015.”
China seems absolutely determined to change the way that international trade is done.  At this point, approximately 70,000 Chinese companies are using Chinese currency in cross-border transactions.
#5 The China/United Arab Emirates Deal
China and the United Arab Emirates have agreed to ditch the U.S. dollar and use their own currencies in oil transactions with each other.
The UAE is a fairly small player, but this is definitely a threat to the petrodollar system.  What will happen to the petrodollar if other oil producing countries in the Middle East follow suit?
#6 Iran
Iran has been one of the most aggressive nations when it comes to moving away from the U.S. dollar in international trade.  For example, it has been reported that India will begin to use gold to buy oil from Iran.
Tensions between the U.S. and Iran are not likely to go away any time soon, and Iran is likely to continue to do what it can to inflict pain on the United States in the financial world.
#7 The China/Saudi Arabia Relationship
Who imports the most oil from Saudi Arabia?
It is not the United States.
Rather, it is China.
As I wrote about the other day, China imported 1.39 million barrels of oil per day from Saudi Arabia in February, which was a 39 percent increase from one year earlier.
Saudi Arabia and China have teamed up to construct a massive new oil refinery in Saudi Arabia, and leaders from both nations have been working to aggressively expand trade between the two nations.
So how long is Saudi Arabia going to stick with the petrodollar if China is their most important customer?
That is a very important question.
#8 The United Nations Has Been Pushing For A New World Reserve Currency
The United Nations has been issuing reports that openly call for an alternative to the U.S. dollar as the reserve currency of the world.
In particular, one UN report envisions "a new global reserve system" in which the U.S. no longer has dominance....
"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency."
#9 The IMF Has Been Pushing For A New World Reserve Currency
The International Monetary Fund has also published a series of reports calling for the U.S. dollar to be replaced as the reserve currency of the world.
In particular, one IMF paper entitled "Reserve Accumulation and International Monetary Stability" that was published a while back actually proposed that a future global currency be named the "Bancor" and that a future global central bank could be put in charge of issuing it....
"A global currency, bancor, issued by a global central bank (see Supplement 1, section V) would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy. As trade and finance continue to grow rapidly and global integration increases, the importance of this broader perspective is expected to continue growing."
#10 Most Of The Rest Of The World Hates The United States
Global sentiment toward the United States has dramatically shifted, and this should not be underestimated.
Decades ago, we were one of the most loved nations on earth.
Now we are one of the most hated.
If you doubt this, just do some international traveling.
Even in Europe (where we are supposed to have friends), Americans are treated like dirt.  Many American travelers have resorted to wearing Canadian pins so that they will not be treated like garbage while traveling over there.
If the rest of the world still loved us, they would probably be glad to continue using the U.S. dollar.  But because we are now so unpopular, that gives other nations even more incentive to dump the dollar in international trade.
So what will happen if the reign of the U.S. dollar as the world reserve currency comes to an end?
Well, some of the potential effects were described in a recent article by Michael Payne....

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