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The Dollar Supremacy

The US’s Achilles Heel

The establishment of a unipolar world is currently being carried out with the conflict in Iraq and the destruction of the United States. However, the war of Iraq hides another war: that of currency control. In this financial war, the United States tries to maintain the dollar as the only reference currency while part of the world is trying to use the euro as an alternative to the American hegemony. The change began late in 2000 when Iraq decided to make out their oil and trade transactions in euros and not in dollars anymore. North Korea and Iran followed the initiative. In March 2001, Venezuela, one of the most important members of the Organization of Petroleum Exporting Countries (OPEC), made a remarkable intervention regarding the use of the Euro in fixing the price of petroleum. In 2002, China and Russia began to convert their financial earnings from dollars to euros. If the Bush administration has its own reasons to attack Iraq, it is supported by the US financial institutions to defend the dollar supremacy. Under the umbrella of the war against Iraq, a world financial war is taking place with the European Union in its center.

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British Separatist Temptation

Recent discussions in the UN Security Council have brought about tensions between, on one side, the United States and Great Britain, and on the other, Russia, France and Germany - and to a certain extent China too. This controversy has crystallized a previous conflict that emerged in the mid 1990s. But we have to analyze the economic alliances of that time to understand certain hidden stances of the war against Iraq.

At that time, the integration of the British economy into the American economy greatly increased with the merger between British Petroleum and the American Oil Company, which originated the world’s third major oil company: BP-AMOCO. In addition, early in the year 2000, US Defense Minister William Cohen and his British counterpart Geoff Hoon signed a declaration of principles about military equipment and industrial cooperation. Also at that time, the five US weapon giants (Lockheed-Martin, Boeing, General Dynamics, Raytheon and Northrop-Grumman) concluded an alliance with the British Aerospace Systems (BAES) in the framework of the agreement about the "transatlantic bridge". As a result of this alliance, BAES became one of the Pentagon’s biggest suppliers of defense material.

In response to this British-American rapprochement, France and Germany encouraged mergers. In 2000, the European Aeronautic Defense and Space Co. (EADS) was born after the integration of Daimler-Chrysler, Aerospace AG, Aerospatiale-Matra and Aeronautic Constructions S.A. Since then, the western aerospace and defense industry is dominated by two groups that wage a fierce commercial war.

The historic alliance between the United Kingdom and the United States was so strengthened that, on both sides of the Atlantic, they said there was an opportunity for the British to leave the European Union and join NAFTA (North American Free Trade Agreement which includes the United States, Canada and Mexico).

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Phil Gramm

On July 4th, 2000, on the occasion of a meeting entitled "Euroland and NAFTA", organized by the British "Center for Policy Studies", Republican Senator Phil Gramm, president of the US Senate Committee on Banking, Housing and Urban Affairs, defended his proposal: «T he world has seen the development of a significant number of free trade areas. The United States is in one of them: the NAFTA, which we hope will expand from the Artic to the Antarctic. But today, I have come to speak to you about the expansion of transatlantic free trade. (...). I see it as a means to break the regional commercial bloc. (...). We have to create a serious force of influence and that could be a free trade agreement between the United States and the United Kingdom. (...). In a week, I could write an amendment and present it to the Senate - and have it passed -, which would give the president the power to begin negotiating a free trade agreement with the United Kingdom».

Many British Parliament members took stands on the issue and, as the debates in the House of Commons show, the controversy was intense.

Main Motivation Hidden

It was in that context that the United States and Great Britain planned the attack against Iraq. Much has been said about three major reasons of this conflict and we will briefly refer to them before focusing on a fundamental cause until then silenced. The Wolfowitz doctrine consists of making a show of force to dissuade all countries from opposing the US superpower in the future; the Perle doctrine seeks to take advantage of the conflict to remodel the Near East; and the Kissinger doctrine recommends taking control over energy resources. There are various factors linked to the latter. In first place, the United States, as first world oil importer (9.8 million barrels per day in 2000, that is, half of its consumption, while Japan imported 5.5 millions and Germany, 2.7), has to guarantee its own supplies. At the same time, they will have the control over oil supply to other importing countries and will be able to exert pressure over their governments. Finally, the war will allow American oil companies to have access to the Iraqi petroleum, known for its low exploitation cost, and of which they had been deprived - with French, Russian and Chinese companies benefiting from that - due to the blockade of Iraq. However, this is just the tip of the iceberg.

Currency of Reference

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By the end of World War II, aiming at avoiding the problems that existed before the conflict, the conference of Bretton Woods established the gold convertibility of currencies. Central banks had to have enough gold reserves to guarantee the conversion of their currencies. However, in 1971, the Nixon administration decided to leave the system replacing the gold pattern by the dollar, which would become a fiduciary currency - the fiduciary currency par excellence. Currently, two thirds of the world reserves of central banks are made up by dollars which are used in more than half of the trade exchanges - and the only country authorized to issue dollars is the United States of America. To a certain point, since 1971, world trade has become a game in which the United States produces green bills and the rest of the world produces assets that the dollar can buy.

And, last but not least, the dollar is, from London to Teheran, from Moscow to Mexico, the currency of reference for oil transactions.

Well, that’s the way it was until October 30, 2000, when the UN Sanctions Commission authorized Iraq to make out its oil and commercial transactions in euros instead of dollars. «The United States has tried to block this operation but, as an expert of the UN Sanctions Commission notes: there is no legal foundation to block the Iraqi request». The Iraqi decision went into effect on November 6 and, shortly afterwards, the country also decided to convert in euros the 10 billion dollars obtained from the Oil for Food program that were blocked in an account of the BNP-Parisbas agency of New York.

Considered as a political decision of Baghdad against Washington, economically speaking, this operation was very profitable as the dollar declined 17% against the euro in 2002. The issue then was to know if other countries would follow the example - the worst nightmare of the US Federal Reserve was that the OPEC could have decided to adopt the euro as the official currency for its international transactions.

Jordan, whose main commercial partner is Iraq, immediately adopted the European currency for its trade with Iraq. As to North Korea, it adopted the euro two years later, on December 11, 2002, as the only currency for its trade operations.

Domino Effect

In July 2002, bankers calculated that the Gulf countries would lose only in 2002 around 97 billion dollars due to the depreciation of the dollar. For its part, the Iranian central bank created a committee to study the issue. According to an Iranian source, the institution would have exerted a lot of pressure upon the Oil Minister to have the country use the euro in its oil trade operations. The change is even more justified considering that a third of the country’s exported oil goes to Europe. Then, in these conditions, why continue using the US currency? According to an Iranian parliament member, «the parliament will likely approve this idea... It would be natural now that the euro is stronger». With Iraq and North Korea, the Axis of Evil [1] was complete.

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OPEC member countries: Venezuela, Iraq, Iran, Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Libya, Algeria, Nigeria and Indonesia.

During a conference presided over by the Spanish Economy Minister, on April 14, 2002, when Spain was holding the chair of the European Union, the director of the OPEC’s Petroleum Market Analysis Department, Iranian Javad Yarjani, diplomatically took a stance: «The question that comes to mind is whether the euro will establish itself in world financial markets, thus challenging the supremacy of the US dollar. (...).One of the more compelling arguments for keeping oil pricing and payments in dollars has been that the US remains a large importer of oil, despite being a substantial crude producer itself. However, looking at the statistics of crude oil exports, one notes that the Euro-zone is an even larger importer of oil and petroleum products. (...). We need to bear in mind that producers, big consumers and importers of the non-dollar zones, like the European Union, share common interests. (...). If oil pricing were to shift to the euro, it could provide a boost to the global acceptability of the euro as the currency of world reference. There is also very strong trade links between OPEC member countries and the euro-zone, with more than 45 percent of total merchandise imports of OPEC members coming from the countries of the Euro-zone. (...). It would be useful to say that changes will be inevitable in oil-related matters in the next few years and we have to prepare for that».

According to many specialists, a suitable moment for this change would be in May 2004 when the European Union expands to 450 million people and a gross domestic product (GDP) of 9.6 billion dollars compared to the 280 million people and 10.5 billion dollars of the United States.

This analysis is also valid for the use of the euro in Russia. Around 21% of the petroleum and 41% of the gas imported by the European Union come from this country. The use of the American currency is not justified here either. That is the substance of the message that Romani Prodi, president of the European Commission, gave to Vladimir Putin during the Russia-European Union summit that took place in May 2001. Speaking about an increase in the exchanges between the two regions and also about an increase of investments coming from the European Union, the European pressured his Russian counterpart to increase the euro shares in commercial payments and in the reserves of the central bank. «The significant role of the "European Union" in Europe and also in world politics, objectively lead us to closer cooperation,» concluded the Russian president.

China and Russia have already begun to convert their financial deposits into euros aiming, eventually, at the equal share of the two currencies. Like Iraq, Iran, North Korea, Russia, China and many other countries, Venezuela has decided to diversify the currency reserves of its central bank selling dollars and buying euros. Even more worrying for the United States, on March 6 and 7, 2001, an International Finance Congress entitled "Globalization process and hidden threat of the currency crisis of world reserves" took place near Moscow. During the first days of sessions, the Venezuelan ambassador to Moscow, Francisco Mieres-López, gave an outstanding speech regarding the viability of switching from the dollar to the euro to fix oil prices. We should recall that this event took place a year before the failed coup in Venezuela, that the OPEC General Secretary was a Venezuelan and that the speech of the ambassador followed an agreement of his country with other 13 countries to exchange their petroleum for other goods and services, thus partially eliminating the currency transactions the oil operations of the world’s fourth largest producer.

Collapse of the US Economy

The US economy is closely linked to the role of the dollar as reserve currency and as world exchange currency. If the main exporters of petroleum and gas decide to use the euro, completely or partially, in their oil transactions, the importers would be forced to sell part of their dollars in their reserves to buy euros. With a decrease of the world need of green bills, the value of the dollar - which significantly lies on its hegemony - would fall, thus depriving its country of its main exporting good. It would be a big blow for the economy of the country which, deprived of its world monetary and commercial control, could no longer afford its imperialist desires.

[1] George W. Bush described Iraq, Iran and North Korea as an «Axis of Evil» in his State of the Union address on January 29, 2002.

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