Dollar Crash: The Real Challenge For OPEC
URL of this article: http://www.globalresearch.ca/index.php?context=viewArticle=MIR20071122=7407
At its recent summit in Riyadh, the Organization of Petroleum Exporting Countries faced an unprecedented crisis: the
price of oil was edging up towards the $100 per barrel mark, as the dollar itself was continuing its inexorable slide on
all financial markets.
Although the Saudi hosts were eager to keep the dollar's agony out of the debate, Venezuelan President Hugo Chavez
forced it onto the agenda, triumphantly announcing that the dollar decline signalled the end of the American empire.
Iranian President Mahmoud Ahmadinejad quipped that the oil producers were delivering their vital goods, and in return,
were getting only "a worthless piece of paper." The idea emerged, that OPEC should study the matter, perhaps seeking an
alternative currency or currencies, in which to trade oil.
The word "dollar" was not referenced in the final document, mainly because of (justified) fears voiced by the Saudi
hosts, that any such mention might precipitate a further crash of the greenback. B ut the summit did decide to set up a
committee, of their oil and finance ministers, to study the matter and come up with recommendations before their next
meeting, scheduled for December 5.
Chavez and Ahmadinejad were those pressing most energetically for open debate on the fate of the dollar. "Don't you see
how the dollar has been in a free-fall without a parachute?" Chavez asked. In his address to the conference, the Iranian
president stated, "Due to the devaluation of the U.S. dollar, oil transactions should be conducted through a combination
of other major hard currencies, and oil bourses should be requested to replace the U.S. dollar with other currencies,"
as reported by Mehr News Agency. He also voiced agreement with an idea Chavez had floated, of setting up an "OPEC bank"
which would protect the hard currencies of the oil producing states.
Ahmadinejad told reporters following the summit that the leaders were "unhappy with the fall in the value [of the
dollar]," adding that "even the American people have lost out." He reported that "All participating leaders showed an
interest in changing their hard currency reserves to a credible hard currency," and that "some" favored an alternative
to the dollar. These "some" emphatically did not include Saudi Arabia, which issued a statement later, that the Kingdom
had absolutely no intention of abandoning the dollar.
Nonetheless, the issue was hot enough to make its way, albeit indirectly, into the summit's final statement. The "Riyadh
Declaration" [www.opec.org/] after stressing OPEC's commitment to maintain stability of the petroleum market, providing
"adequate, timely, efficient, economic and reliable petroleum supplies to world markets," made brief reference to the
currency issue. It said the OPEC members resolved to "Instruct our Petroleum/Energy and Finance Ministers to study ways
and means of enhancing financial cooperation among OPEC Member Countries, including proposals by some of the Heads of
State and Government in their statements to the Summit." Iranian Oil Minister Gholam Hussein Nozari explained that this
committee had been decided on, "to study the impact of the dollar on oil prices," while his Iraqi counterpart Hussein
al-Shahristani said the committee would "submit to OPEC its recommendation on a basket of currencies that OPEC members
will deal with."
The question is: what can such a committee achieve? That depends on how it formulates the problem. If the ministers
focus on simply replacing the dollar with another currency, or basket of currencies, they will solve nothing. Although
Chavez celebrated the fall of the dollar as the "fall of the American empire," and looked to the day when Latin America
and the world would be freed of the U.S. currency, he was blithely ignoring a simple reality: the dollar is not just the
currency of the U.S., still the world's biggest economy; it is the basis of the world financial system. The dollar is
the leading currency in international trade, and dominates world financial transactions. It is still the major reserve
currency for central banks, even though their percentage of dollar holdings has dropped from 71% in 1999 to 64.8% today.
True, central banks have been moving out of the dollar and into other currencies, especially the euro and yen. In
August, for the first time in ages, there was a net outflow of dollars and U.S. investments, to the tune of $150
billion, reversing a trend that used to see hundreds of billions flowing into America, to finance its multiple deficits.
Those pulling dollars out of the U.S. included China; the assistant governor of the Bnak of China Yi Gang did say on
November 15 that the dollar would remain the leader among its $1.4 trillion (!) reserves, however he added that China
would "diversify." Cheng Siwei, vice chairman of the Standing Committee of the National Peoples Congress, was quoted by
the Peoples Daily on November 8, saying "We [China] favor stronger currencies over weaker ones, and will readjust
accordingly," i.e. continue to diversify. Russia has diversified, as have many Persian Gulf countries, including Iran.
But this, in itself, will solve nothing. The crisis of the dollar is the {crisis of the dollar-denominated system}.
Unless that reality is addressed, no bandaid measures can provide relief. Just imagine what would happen, were China to
pull out of the dollar completely. That would further plunge the dollar into negative territory, but with the result
that China's earnings from its trade with the U.S., would plummet.
Any serious approach to address the dollar crisis, must address the underlying problem: the system is bankrupt and must
be radically reformed, in order to prevent the collapse of the dollar system from precipitating a breakdown of the world
economy--the production and trade of real goods and services, upon which the well-being of nations and populations
depend. Ahmadinejad laid the blame for the dollar collapse on the Bush Administration--all well and good, so far as it
goes. But the insane financial, monetary and economic policies which have reached a peak under George W. and his
henchmen Alan Greenspan and Ben Bernanke, have been merely the continuation of a defective policy orientation going back
to the early 1960s. It was after the assassination of John F. Kennedy that U.S. (and British) economic policy radically
shifted away from emphasis on investment in the production of real goods and services, and vital infrastructure, into
pure speculation. Richard Nixon's decouplin g of the dollar from gold in August 1971, created the basis for the floating
exchange system, whereby national currencies could and did become the prey of voracious speculators. From then on, the
system generated one after another of wild speculative instruments, leading into today's explosive $750 derivatives
market, collateral debt obligations, mortgage-backed securities, and the like. Now, a reverse-leveraging process has set
in, whereby the croupier is calling in the debts. And the players' pockets are empty. The biggest banks in the U.S., led
by Merrill Lynch and Citigroup, have reported tens of billions of dollars in losses, while their stocks plunge on the
markets. No amount of pump-priming and repeated injections of hundreds of billions of dollars into the banking system
can save it. Ben "helicoptor" Bernanke may think he can fly over America in a plane and flood the country with
liquidity, but he is going to run out of gas very soon.
Given this reality, what can a committee of oil and finance ministers of the OPEC countries, as constituted at the last
summit, do? Since they do not control monetary policy worldwide, they could not work wonders. But they could make a
crucial contribution, by laying bare the true parameters of the crisis, identifying the implications of the dollar
crisis for the international systen as a whole. They could go a step further, and propose an immediate international
conference of leading nations--emphatically including the leading culprit, the U.S., as well as Russia and China--to map
out a program for the reform of the system, which would begin by reviving the best aspects of the Bretton Woods system
of 1944. This means reestablishing fixed exchange rates among leading currencies, as the precondition for orderly
international trade and an antidote against currency speculation. This would also require a shift in economic policy
orientation, away from the liberal, free market spe culative madness, back to sound investments in infrastructure,
manufacturing, mining, agriculture, and so forth. Once a new international monetary system were in place, it would be
essentially irrelevant, what currency oil producers (or others) would use in their trade.
Were such an OPEC committee to address the issue from this global standpoint, it could go further, and really take the
bull by the horns, so to speak. The OPEC summit leaders demonstrated their responsibility to the world economy, by
pledging secure supplies. But it is undeniable that each of the leaders who met in Riyadh for the third OPEC summit,
knows that, no matter how vast the world's oil reserves may be, they are ultimately limited. (The same could be said of
gas.) This poses the question: what next?
A sane economic policy approach would say: let us look beyond the era of an oil-based economy, to the era of a
nuclear-energy based world economy. From an economic standpoint, it is clear that only massive use of nuclear technology
can provide the energy required to maintain a growing world economy. The industrialization of Africa, for example,
requires this level of energy input. The political insecurity created over recent years by Dick Cheney's wars against
Iraq, and now, threatened, against Iran, has added impetus to the need for securing alternative energy resources. The
recent statements by the Gulf Cooperation Council, regarding that group's desire to develop nuclear energy technology
for peaceful purposes, can only be applauded. Egypt, Algeria, and other Arab coutnries have demonstrated similar
interest. Iran, whose nuclear program is being exploited as a pretext to launch war, has offered to share its proven
technological expertise with other countries. Recent discus sions about the possibility of establishing uranium
enrichment facilities jointly in "neutral" countries (eg. Switzerland) have been seriously taken up by Iran, among
others. In the perspective of massive development of nuclear energy for peaceful purposes, the giant oil producers in
OPEC, could think of directing their precious resources as the raw materials for petrochemical and other processes.
If the new committee envisioned by the OPEC summit takes up these issues, a new, potentially powerful flank may be
opened up in international economic and political relations. These countries control resources on which most of the
world depends: why should they not use their clout to redefine the international agenda?
*************
Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily
reflect those of the Centre for Research on Globalization.
The CRG grants permission to cross-post original Global Research articles on community internet sites as long as the
text & title are not modified. The source and the author's copyright must be displayed. For publication of Global Research
articles in print or other forms including commercial internet sites, contact: crgeditor@yahoo.com
www.globalresearch.ca contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We
are making such material available to our readers under the provisions of "fair use" in an effort to advance a better
understanding of political, economic and social issues. The material on this site is distributed without profit to those
who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use
copyrighted material for purposes other than "fair use" you must request permission from the copyright owner.
For media inquiries: crgeditor@yahoo.com
© Copyright Muriel Mirak-Weissbach, GlobalResearch.ca, 2007