In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading

By Robert Fisk

Tuesday, 6 October 2009

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

China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; 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.

http://www.independent.co.uk/news/busin ... 98175.html

Dollar tumbles on report of its demise

Gold price at record high as Independent story sends global markets into a frenzy

By Stephen Foley in New York

Wednesday, 7 October 2009

The price of gold is surging on world markets amid fears that the old economic order based on the supremacy of the US dollar could be breaking down.

A new spike has sent the cost of the precious metal to a level not seen before. The dollar slid sharply after yesterday's report in The Independent that Gulf Arab states are secretly planning to stop trading oil in dollars, and a senior UN official said that the US should be stripped of its position as the main source of currency reserves for other countries.

The developments come on top of speculation that the Obama administration is operating a policy of benign neglect of the dollar, engineering a devaluation that could help repair some of the economic damage caused by the recession.
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Not since the collapse of the Bretton Woods system in 1971 has gold been treated as the equivalent of a world currency, but The Independent reported that it could form part of a basket of currencies that would be used for oil trading by the end of the next decade.

Aram Shishmanian, the chief executive of World Gold Council, said: "The financial and economic instability of the past 18 months has brought gold's historical role into sharp focus and has continued to increase its prominence among policy advisers, central banks, and investors around the world.

Across the world, investors have been reaching for gold as an alternative to the dollar and to other US assets, fearing that the American currency is headed inexorably lower.

The dollar index – which measures the greenback against other currencies – fell 0.7 per cent yesterday and the dollar was lower against all major currencies except the British pound.

The US government's debt – which stands at $11.86 trillion (£7.45trn) after tax revenues collapsed with the recession and the Treasury spent billions on propping up the banking system – would be easier to repay if the value of the dollar was lower. Economists noted that the US resisted pressure to include a promise to protect the stability of world currencies in last weekend's communiqué from the International Monetary Fund (IMF), sparking growing concern that the Obama administration could be content to see the currency fall. That would make US exports more competitive and could spark a manufacturing jobs revival.

Overseas governments are in a bind because they hold trillions of dollars as reserves to protect them against a financial crisis. They are seeing the value of those reserves decline, but starting to swap them for gold or other currencies could deluge world markets with unwanted dollars and send the value of the greenback even lower. The situation is particularly sensitive for oil-producing nations, who are paid in dollars for their exports and therefore hold high dollar reserves.

Gulf Arabs have begun planning – with China, Russia, Japan and France – to move from dollar dealings for oil to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new currency planned for nations in the Gulf Co-operation Council, which includes 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 oil will no longer be priced in dollars. The revelation was met with public denials yesterday. The Saudi central bank governor, Muhammad al-Jasser, said: "The future is in God's hands. Today, the conditions are good for the arrangement we have." The Japanese Finance Minister, Hirohisa Fujii, said he "doesn't know anything about it".

Dennis Gartman, the US investment guru who writes the daily Gartman Letter, said that no one should be surprised to hear denials. "We are certain that spokespeople for every single nation will be brought to the fore to deny that any such meetings have occurred, that no such decisions have been made, that it is not in anyone's interest to have held such meetings or made such decisions," he told clients as The Independent story broke. "The market will care not a whit."

Simon Johnson, the IMF's former chief economist, said the countries involved would calculate that it was not in their interests to drive the dollar down by eroding its position as the currency of international commodities trading and central bank reserves.

"It would only be great news for the US. The US would love a little bit of devaluation, even though they can't say it," he said. "They have to pay lip service to the strong dollar policy, but if someone else were to engineer a devaluation, that would be lucky break for the US."

http://www.independent.co.uk/news/busin ... 98713.html

Don't the Chinese own about 80% of the worlds gold? and don't they have more US dollars than anyone else? This has gotta be bad for the US.

Oil states say no talks on replacing dollar

By Simon Rabinotvitch and Wayne Cole

ISTANBUL/SYDNEY (Reuters) - Big oil producing nations denied a British newspaper report on Tuesday that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in trading oil.

The dollar eased in response to the report, which was written by The Independent's Middle East correspondent Robert Fisk and cited unidentified sources in Gulf Arab states and Chinese banking sources in Hong Kong.

It said the proposal was for trade in crude oil to move over nine years to a basket of currencies including the Japanese yen, the Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, which includes Saudi Arabia and Kuwait.

The report coincides with a wider debate on the role of the dollar as the world's reserve currency, which has come under question. For most of this decade, the United States has struggled to maintain the dollar's value.

But top officials of Saudi Arabia and Russia, speaking on the sidelines of International Monetary Fund meetings in Istanbul, denied there were such talks. The two countries are the world's largest and second-largest oil exporters.

Asked by reporters about the newspaper story, Saudi Arabia's central bank chief Muhammad al-Jasser said: "Absolutely incorrect." He repeated the same response when asked whether Saudi Arabia was in such talks.

Kuwait's oil minister and a well-placed source in the Organization of the Petroleum Exporting Countries made similar remarks. Russia's deputy finance minister Dmitry Pankin said: "We did not discuss this at all."

The dollar slipped after the newspaper story. The euro edged up as high as $1.4756, although it fell back to $1.4701 when the Saudi Arabian and Russian officials denied the report. Oil prices rose above $71 a barrel on Tuesday.

Algerian Finance Minister Karim Djoudi told Reuters: "Oil producing countries need to stabilize revenues but...I don't see a need for oil trade to be denominated differently.

"But we are at the IMF conference where all sorts of subjects are raised and discussed," he added.

'NOT LIKELY'

Analysts said that while individual countries would find it relatively easy to stop using the dollar in oil trades, as Iran has done, replacing the currency in which oil is priced would require a massive effort.

The newspaper story did not make clear how the change would work, and many analysts doubted it would occur any time soon.

"I don't think this is a likely scenario in the short to medium term," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. "Without Saudi Arabia's support it is difficult to imagine that the dollar will be replaced."

Saudi Arabia and some other Gulf states peg their currencies to the dollar. Russia has in the past raised the idea of shifting its oil trade away from the dollar, which has been undermined by the U.S. trade and budget deficits. China has suggested that in the long term, the dollar should lose its role as the globe's top reserve currency.

But strong political links between Gulf nations and the United States, as well as the lack of convertibility for many Gulf currencies and the yuan top the list of practical hurdles to replacing the dollar.

"If there was already a significant proportion of global oil trade being priced in non-U.S. dollar now, than perhaps there would be more pressure to price crude in another currency," said Victor Shum, analyst at Purvin & Gertz in Singapore. "But we're still far from that."

'WORTHLESS PIECE OF PAPER'

Iran, which a few years ago began increasing its sales of oil in non-dollar currencies, has benefited by billions of dollars as a result, its finance minister said on Tuesday in Istanbul.

Shamseddin Hosseini said he had discussed with other countries the possibility of shifting oil trade away from the dollar in the past, but had not held any such talks in recent days.

"Some of the countries right now accept this idea," he said. "But this is one of the subjects that needs more discussion and (to be) agreed on by everyone," he said through an interpreter.

Iranian President Mahmoud Ahmadinejad has called the U.S. currency a "worthless piece of paper." The Islamic state is under U.S. and U.N. sanctions over its nuclear programme.

The Independent's story said: "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."

France had also been involved in the talks, it said.

The Independent said U.S. authorities were aware that the meetings had taken place but had not discovered the details and were "sure to fight this international cabal."

Everybody knows the dollar is fucked, they are just doing some basic PR by denying the obvious.

I think deflation of the dollar (which is undenied) is a separate story from what they are proposing in the independent article. I mean its bad that this is even discussed.

The interview with Gore Vidal on that site is a pretty incredible read. He's done it all really.

Gore Vidal is the biggest asshole i've ever heard/read interviewed.

You definitely wouldn't like this interview then.

It's really good to see that the media is covering this so well....oh, wait....

I think you are thinking of copper.

They have purchased large amounts of mineral rights, but owning the contract and possessing the mineral are two separate issues. I would just like to point out that China's aggressive behavior towards acquiring long term contracts for oil, gallium, copper, etc show intelligence and leadership. Our presidents and congress for decades now have done nothing but embarrass us.

Every single incumbent should be voted out and replaced with people who can think farther than the next election year.

This rumor resurfaces pretty much every year. Nothing ever happens with it.

And yes, China has a large stake in the US dollar. Why would they purposely want to destroy it?

The other thing you have to consider is how meaningless it really is that oil is priced in dollars. It could be priced in Krugerands and it wouldn't make a bit of a difference. That's because oil buyers can almost instantaneously swap their dollars on the Forex market for whatever currency the oil is priced in. And nobody is currently required to hold dollars because oil is priced in dollars. This is much ado about nothing; Ben Bernanke is the only one with both the tools and the motivation to destroy the dollar.

Can someone give me the positives and negatives of a global currency?

Positives: Won't be as susceptible to each and every whim of central banks of politicians.
Negatives: Whose whims will it be susceptible to?

Is that you Alex Jones?

yeah, the bold was always something i've wondered/had suspicions about; that what something's priced in on world markets doesn't really matter at all. it seems like common sense actually, with the knowledge that foreign currencies can be exchanged.

i tried to read one of his interviews and i just gave up. not doin that to myself, i said. i remember he made some crazy comments post-Obama election too, though i can't remember for the life of me what about. just remember everyone looking at him like he was crazy. i'm thinking it was on BBC (or BBC America or something) but i don't remember.

Well he doesn't disparage Obama but he does say he's got far too much on his plate & basically doesn't have the chops for it all, but also given what's going on, few would. It's actually a good read but man is he a cantankerous old prick or what?

He was 'fellated' by Jack Kerouac once. I didn't know that.

Yeah, that's kind of my feeling. I'd really like someone who endorses it to explain why though--or even a devil's advocate version.