United States to go with the Euro?

Much discussion at ATS on the war in Iraq, Russia to go with the Euro, and conversion of petrodollars to the Euro.

I myself, have started a thread on the
The Bankruptcy of the United States

Where is all this going?

It occured to me that there may be one way out.
There may be one way the USA can avoid total bankruptsy, or another great depression.

The USA begins to trade in Euro's.

The war in Iraq, as many have suggested, was just a political monetary plot, so the United States can maintain it's hold in the international community trading in dollars for oil, the prime reason the US has been able to float it's currency for so long, and maintain deficits that are huge.

Who is paying for these deficits, and how on earth can they be continued without failing the currency?

Well, the rest of the world has been paying for them. (also refer to top link)

The key to it all is the fiat currency for trading oil. Under an OPEC agreement, all oil has been traded in US dollars since 1971 (after the dropping of the gold standard) which makes the US dollar the de facto major international trading currency. If other nations have to hoard dollars to buy oil, then they want to use that hoard for other trading too. This fact gives America a huge trading advantage and helps make it the dominant economy in the world.

As an economic bloc, the European Union is the only challenger to the USA's economic position, and it created the euro to challenge the dollar in international markets. However, the EU is not yet united behind the euro -- there is a lot of jingoistic national politics involved, not least in Britain -- and in any case, so long as nations throughout the world must hoard dollars to buy oil, the euro can make only very limited inroads into the dollar's dominance.

In 1999, Iraq, with the world's second largest oil reserves, switched to trading its oil in euros. American analysts fell about laughing; Iraq had just made a mistake that was going to beggar the nation. But two years on, alarm bells were sounding; the euro was rising against the dollar, Iraq had given itself a huge economic free kick by switching.

Iran started thinking about switching too; Venezuela, the 4th largest oil producer, began looking at it and has been cutting out the dollar by bartering oil with several nations including America's bete noir, Cuba. Russia is seeking to ramp up oil production with Europe (trading in euros) an obvious market.

Not Oil, But Dollars vs. Euros

Then one day, one petrol seller says he is going to accept another person's cheques, a couple of others think that might be a good idea. If this spreads, people are going to stop hoarding your cheques and they will come flying home to the bank. Since you don't have enough in the bank to cover all the cheques, very nasty stuff is going to hit the fan!

Well, this has been progressing, and actually quite rapidly recently. Gold HAS been brought into the picture, as countries are scrambling for safe haven, in times of uncertanty. Other countries know what they want, but really dont know what will happen. This is a period of transition and unknown territory for many.


The United States has been involved in a program of 'Dollarization', whereby dollars are being 'forced' into countries that would not normally be trading in them, reletive to their accepted trading currency.


Dollarization occurs when residents of a country extensively use the U.S. dollar or another foreign currency alongside or instead of the domestic currency. Unofficial dollarization occurs when individuals hold foreign-currency bank deposits or notes (paper money) to protect against high inflation in the domestic currency. Official dollarization occurs when a government adopts foreign currency as the predominant or exclusive legal tender.

Basics of Dollarization

US Floods Iraq With Dollars

Locking the world back into dollar oil trading would consolidate America's current position and make it all but impregnable as the dominant world power -- economically and militarily. A splintered Europe (the US is working hard to split Europe; Britain was easy, but other Europeans have offered support in terms of UN votes) and its euro would suffer a serious setback and might take decades to recover.


A move by Russia, as the world's second largest oil exporter, to trade oil in euros, could provoke a chain reaction among other oil producers currently mulling a switch and would further boost the euro's gradually growing share of global currency reserves.

Putin: Why Not Price Oil in Euros?

Now, many other countries are hell-bent to retaliate against the US for a variety of reasons. They could see this as an opportunity to 'strike back' with a force to be dealt with.


Iran's proposal to receive payments for crude oil sales to Europe in euros instead of U.S. dollars is based primarily on economics, Iranian and industry sources said.

But politics are still likely to be a factor in any decision, they said, as Iran uses the opportunity to hit back at the U.S. government, which recently labeled it part of an "axis of evil."

Economics Drive Iran Euro Oil Plan, Politics Also Key

Faced with waning international economic power, military superiority is the United States� only tool for world domination. Although, the expense of this military control is unsustainable, says William Clark, "one of the dirty little secrets of today's international order is that the rest of the globe could topple the United States from its hegemonic status whenever they so choose with a concerted abandonment of the dollar standard. This is America's preeminent, inescapable Achilles Heel." If American power is ever perceived globally as a greater liability than the dangers of toppling the international order, the U.S. systems of control can be eliminated and collapsed. When acting against world opinion � as in Iraq � an international consensus could brand the United States as a �rogue nation.�

U.S. Dollar vs. the Euro: Another Reason for the Invasion of Iraq


So, the question is...

WHEN will the US become a trader in Euro's, accepting it as a dual currency, at leat, for the preservation of it's economy to say the least?

What is needed is a multilateral meeting of the G-7 nations to reform the international monetary system. Given that future wars will become more likely over oil and the currency of oil, the author advocates that the global monetary system be reformed without delay. This would include the dollar and euro being designated as equal international reserve currencies, and placed within an exchange band along with a dual-OPEC oil transaction currency standard. Additionally, the G-7 nations should also explore a future third reserve currency option regarding a yen/yuan bloc for East Asia. A compromise on the euro/oil issues via a multilateral treaty with a gradual phase-in of a dual-OPEC transaction currency standard could minimize economic dislocations within the U.S.


But as countries that formerly held mostly the US dollars in their currency reserves begin to diversify into euros, the currency has taken its place alongside the dollar, as the world's other global reserve currency. While current data are hard to come by, the euro now accounts for as much as 35 per cent of global trade and reserve holdings. This new reality makes for a more stable world � and takes the unsustainable burden of the sole reserve currency status off the US dollar.

Clearly, with its enormous, open-ended commitments in the global war on terrorism, the US economy cannot at the same time, continue to absorb most of the world's exports � and remain the locomotive of the world's economic growth. This new situation seems a surprise to the Bush Administration. It is still keen on expanding its overseas commitments, re-building Iraq and offering aid packages to Turkey, Pakistan and other countries whose support is sought. In the meantime, it has passed a $350 billion tax cut package in late May, 2003.

Dollar-euro-oil equation

Now the 'other' questions...China, and asian countries, etc...

Last year the former US Ambassador to Saudi Arabia told a committee of the US Congress: 'One of the major things the Saudis have historically done, in part out of friendship with the United States, is to insist that oil continues to be priced in dollars. Therefore, the US Treasury can print money and buy oil, which is an advantage no other country has. With the emergence of other currencies and with strains in the relationship, I wonder whether there will not again be, as there have been in the past, people in Saudi Arabia who raise the question of why they should be so kind to the United States.'

Oil pricing is just the background to a wider issue. The Bank of China and the Russian Central Bank are both rumoured to be waiting for the best moment to increase the holdings of euros. Only 5 per cent of Chinese reserves are held in euros, but more than 20 per cent of its trade is with Europe. Middle Eastern states hold $700bn of US assets, but comparatively little in Europe.

When will we buy oil in euros?

And that is the real One Dollar question.

When will the USA begin to trade in Euro's?!

As soon as the international momentum of change, gains such speed and power that resistance thru wars are no longer a viable answer or threat?

As soon as the USD begins a free-fall and international countries begin dumping the dollar as a safe haven for investment?

Let me know what you think !

I feel, that the only protection the american dollar has, is thru investing in euro's as a safe hedge, as well as re-stocking the treasury with gold reserves.


.

Good question smirkley and well presented.
Though I do not agree with some of this, I will assert that the US won't necessarily "switch" to Euro, but what will likely happen is if oil is priced in Euro's, the US will convert/exchange dollars to Euro's for the sack of payment.....

With the economic situation , that is not getting any better in Europe, I forsee the Euro actually weakening in time to the dollar in the near future. Germany is suffering bad economically and projections for next year, 2004, are not looking any better till maybe the 4th quarter. France is having some major economic issues, as are a number of other nations.....all of which, have switched to the Euro........

Well see, but I just don't see the US switching from dollars to Euro's anytime soon.....


regards
seekerof

[Edited on 15-11-2003 by Seekerof]

# the Euro. Gold, silver, platinum, commidties..thats where id invest. Id trust no currency, least of all Europes currency. Besides, that would strengthen the EU, something I dont want, given the ramifications of it in the long run.......

I am saving my dollars, bit by bit, because when the dollar crashes, I want to have something reliable.

GOLD. Its been the universal currency for thousands of years, and when economies fall, gold is always there......

But if the oil producers only want euro's, and other countries are dumping dollar's, there will be only one method of payment for the US need of oil.

I dont think the suggestion was the US 'switch' to euro's, more so the US begin trading in euro's as a dual currency.

Dollarization can occur both ways, and isnt limited to just the 'dollar'.

smirkley,

no offense meant but many of your past posts have been too eager to see the demise of the US.

now are you changing your tactics?

Here is an even better idea:

The US gets rid of oil period and converts to an energy source we can supply and produce abundantly.

That takes care of the Euro issue, the future stability of US currency, and perhaps, the beauty of our environment.

That would be the best idea yet, and we can finally turn and snub the middle east for good, cut them off, and let them continue fighting thier stupid tribal wars until they finally grow the # up.

Originally posted by THENEO
smirkley,

no offense meant but many of your past posts have been too eager to see the demise of the US.

now are you changing your tactics?

Absolutely NOT!

I do not wish to appear 'eager' to see the demise of the US, I do hope to appear eager to see the US not fall in power, although my past posts suggest the demise of the 'current' currency.

I would prefer to see the dollar based on something of strength, instead of being a floated currency that is appearing to become very unstable, and prone to possible devaluation that would potentially put the US in a very difficult economic position.

I do wish to discuss the world economic issue's, as dry as that may seem, as this IS the underlying cause of much of the turmoil in the world today.

No offense taken..and hopefully likewise..

Okay, sorry for any missteps here.

But we can agree that the US is in a transition phase correct (like many countries for that matter).

The important thing is who is calling the shots, is it made in USA policy of made in Europe?

Originally posted by smirkley


What is needed is a multilateral meeting of the G-7 nations to reform the international monetary system. Given that future wars will become more likely over oil and the currency of oil, the author advocates that the global monetary system be reformed without delay. This would include the dollar and euro being designated as equal international reserve currencies, and placed within an exchange band along with a dual-OPEC oil transaction currency standard. Additionally, the G-7 nations should also explore a future third reserve currency option regarding a yen/yuan bloc for East Asia. A compromise on the euro/oil issues via a multilateral treaty with a gradual phase-in of a dual-OPEC transaction currency standard could minimize economic dislocations within the U.S.


But as countries that formerly held mostly the US dollars in their currency reserves begin to diversify into euros, the currency has taken its place alongside the dollar, as the world's other global reserve currency. While current data are hard to come by, the euro now accounts for as much as 35 per cent of global trade and reserve holdings. This new reality makes for a more stable world � and takes the unsustainable burden of the sole reserve currency status off the US dollar.

Clearly, with its enormous, open-ended commitments in the global war on terrorism, the US economy cannot at the same time, continue to absorb most of the world's exports � and remain the locomotive of the world's economic growth.

To quote myself, and my post, it can be viewed as a discussion of solution, not a projection.


.

[Edited on 16-11-2003 by smirkley]

All I can say about this topic is that I have been to more than 30 foreign countries in the last 20 years, and in all of those countries (with one exception) US Dollars were accepted in lieu of the national currency.

Some European countries (England, Germany, France) it was harder to pass off US Dollars, but usually the cabbies and bartenders would take them is you asked. Some countries cut you a better deal if you paid in US Dollars.

Only in Romania (circa 1988) could I find no takers for US Dollars. I later found out that the communist government of Romania had made the possession and trading of foreign currency a crime there......

Euro are nice, and I suspect their value will grow in time, but I'm sticking with US Greenbacks

The current solution has worked so far....

1. Look at the member nations that are trying to get the OPEC move to Euros to happen...

2. Invent, or reiterate, a reason to oust them and install a US policy friendly government...(i.e. one that favors the dollar)

3. Then, using these new US policy friendly members of OPEC, influence the vote from the inside of OPEC itself...

4. Saudi Arabia, you are next, in case you haven't been watching the news....

5. All the while, work on making alternate energy sources more practical and economical, for the eventual crash of the world oil markets, and numerous Arab nations will suffer an economic depression...with the plummet in world oil pricing...(after the reduction of requests from it's biggest consumer)...

[Edited on 17-11-2003 by Gazrok]

Originally posted by Pyros
All I can say about this topic is that I have been to more than 30 foreign countries in the last 20 years, and in all of those countries (with one exception) US Dollars were accepted in lieu of the national currency.

This is in fact defined as..

Unofficial dollarization can include holding any of the following:

foreign bonds and other nonmonetary assets, generally held abroad;
foreign-currency deposits abroad;
foreign-currency deposits in the domestic banking system; or
foreign notes (paper money) in wallets and mattresses.


Now this same thing, Un-official Dollarization, is what is just beginning with the Euro.

Currently certain countries are participating in it;s use, along with the 'Official' dollarization of the Euro.

America, is currently not participating in either Official or Un-official Dollarization of the Euro.
Quite the opposite, as in the case of Iraq.

I would wonder when the next 'prone' and small petro country would step forward to try.
What will the US reaction be.
Countries I suggest in this class, Venezuela, Iran, etc.

I dont think Saudi falls in this class as that would easily be the trigger of the
big countries (Russia, China, etc) to make a simultaneous shift.
Saudi is just too powerful in the world economy right now.


And Gaz...#5...this would be great, but highly unlikely to implement in a on-need basis.
It would have to be a transition that would take much time and expense.

.

First off, the EU would never let the US economy collapse. Why? Because it would like hell on this side of the Atlantic too.

The European Union and the United States are the two largest economies in the world. They account together for about half the entire world economy. The EU and the US have also the biggest bilateral trading and investment relationship. Transatlantic flows of trade and investment amount to around $1 billion a day, and jointly, our global trade accounts for almost 40 % of world trade.

europa.eu.int...

That said, the EU & Japan would probably bail out the US in case of an economic meltdown.