The mainstream media doesn’t seem to understand the potential magnitude of changes currently underway in the sensitive international monetary balance. On December 8th Iran decided to no longer accept the US dollar in exchange for its oil. Since the mainstream media did not cover it either, you may not remember that this was one of the last actions of any international significance done by Saddam Hussein before he once again caught the attention of the US (and incidentally, it is one of the first things to be undone after Baghdad fell). It looks like Iran is switching to the Euro rather than the basket of currencies that OPEC is considering in the wake of the US dollar’s recent weakness. An exodus from the dollar would effectively mark the end of the Bretton Woods agreement under which the US currency was established as the currency of oil and therefore international banking.
To further add to the dilemma, countries that have maintained their currency’s value at parity with the US Dollar under what is referred to as Bretton Woods II are increasing going their separate ways. Oil-rich countries and other countries that have large trade deficits with the US, such as China, are also slowly trying to get rid of their US treasury bonds (if they remove them too fast the dollar will crash, drastically reducing the value of their remaining bonds).
In another worrying development, Russia’s Oil and Gas giant Lukoil announced today that it may switch from the US dollar as soon as 2009. Venezuela’s leader, Hugo Chavez, recently denounced the US Dollar as a worthless piece of paper so it is entirely possible that Venezuela may soon make an announcement as well.
I am not going to make any conclusions on where this is all leading to us but I hope that there will be a good discussion on the consequences.