The dollar is sliding on the currency markets this morning after reports by the Independent newspaper that Arab states are in secret talks with China, Russia and France to stop using the US currency for oil trading.
The move – if it happens – would be the most profound financial change in recent Middle East history, argues the paper. It would send shock-waves through the international oil market, and change the geo-political landscape. The story, written by the highly respected Robert Fisk, has already led to a rush of denials that this is about to happen.
Apparently secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil.
One country has already made the change, Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars.
But Reuters has just reported that the United Arab Emirates central bank has come out denying the reports “They are going to stay with the dollar. For so long oil pricing is in dollars and it would be difficult for producing countries to change.”
But such is the way, the very fact that talks are ongoing about maybe dumping the dollar, means that the dollar is now falling. “The very fact that such an idea is being entertained is undermining the dollar,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.
But some analysts believe that the dollar’s long-term future as the currency for oil trading is in serious trouble and will be replaced over the next few years.
“China, Russia and many Middle East countries already have large dollar reserves. They want to stop them getting higher, and may even want to start diversifying them into other currencies,” says David Hart, oil and gas analyst at investment bank Hanson Westhouse.
– from priceofoil.org
Update:
Sometimes a story grows legs, other times it hits the dust.
But yesterday’s front page story in the Independent about negotiations to end oil trading in dollars seems to have hit a raw nerve and sent shock-waves through the currency markets.
In response to the story, gold is now trading at record levels and the dollar is sliding.
As Robert Fisk – the respected Middle East correspondent of the paper – points out in today’s edition it has been denied by what he called the “usual suspects”, principally Mohammed al-Jasser, the director of Saudi Arabia’s central bank, who told reporters that there has been “absolutely nothing” of that nature discussed between Saudi Arabia, the world’s biggest oil exporter, and other countries.
It was not the only Gulf State to deny the rumours. Everyone was tripping over themselves to deny it. “We have never heard of this or discussed this, not even secretly,” Qatar’s oil minister Abdullah bin Hamad Al Attiyah said. Japan’s Finance Minister said “I know nothing about it”. Russia, Kuwait and Oman also dismissed the speculation.
But speaking on Aljazeera yesterday, Fisk was sticking to his guns. “They have been talking about it for 2 years. There have been about 4 meetings in comparative secrecy to discuss this,” he said.
Fisk argues that it is not something that is going to be achieved over-night, but should happen by 2018.
The veteran jounalist, who is based in Beruit, argues that it is normal for stories to be denied by the Saudis at the same time as they know them to be true. Don’t forget, he argues, that Saudi Arabia denied Iraq had invaded Kuwait in 1990 until the US broadcasters showed tanks across the border.
But the Saudi’s are key players: “Yes” says Fisk, “the Saudis have been involved. Yes, the Gulf Cooperative Council has been involved. They are planning another currency”.
Fisk continues: “The move is the beginnings of a new world order and would involve a massive power play between China – that wants to move away from holding vast reserves of dollars – to the US.”
Fisk argues that “if we are going to have an economic battle fought over the Middle East – not over the justices and injustices of the conflicts of the Middle East, but about oil – then we are not going to solve the problems of the Middle East. We are going to find that the Middle East – once again – becomes a tool of super-power rivalry.”
And that can only be bad news.
– from priceofoil.org