Time for euro to replace dollar as the de-facto world reserve currency
Posted by: chehak on: July 15, 2008
The de-facto world reserve currency refers to a currency in which the majority of international transactions take place.
Since the time after the Second World War, the de facto world currency has been the United States dollar. During that war, the U.S. provided support, medical help and ammunitions to its allies, demanding gold payments in exchange. By then, the Bretton Woods agreement was established by which banks of issue were required to redeem their currency in gold bullion or in U.S. Dollar- which in turn were redeemable in gold bullion at the rate of $35/troy ounce (1 troy ounce = 31.1034768 g). After the war ended in 1945, bulk of the world’s gold was lying in the U.S. vaults. Henceforth, the dollar became the undisputed global reserve currency. Some countries like Ecuador, El Salvador, and Panama have gone a step further and eliminated their own currency in favour of U.S. Dollar.
The United States took advantage of this fact and printed dollars in huge quantity. It exported large chunks of dollars, paying for commodities, tax cuts, wars abroad, spies and politicians world over. This measure could not affect the inflation back home. It got it all for free!! Outside U.S., 2/3rd of most of the reserves of the other countries is in U.S. dollars. In 1971, when some countries tried to sell their dollars in return for gold, U.S. defaulted on its payment and the Bretton Woods Agreement was smashed. To regain the trust of the world in the paper dollar, U.S. bullied OPEC to sell oil in dollars only. Now the countries had to keep the dollars to buy the much-needed oil. Oil replaced gold as the foundation to stop dollar from sinking.
But, in late 1999, Euro was established and months later, Iraq announced that thereafter it would sell oil in euros only. Then, the U.S. for obvious reasons invaded it. In 2004, Iran proposed the setting up of an oil bourse to sell oil in euros only. India and China have also supported this decision. It makes sense for Europe and Japan too, to buy and sell oil in euros as the euro is far more stable than the debt-ridden dollar.
The world would now have to start stalking up euros and sell back dollars. But the U.S. can’t accept even 1/10th of the world’s dollars as its economy would crash. What would happen to U.S. then? A re-run of Germany post 1929?
What do you have to say? Express yourself here!!
12 Responses to "Time for euro to replace dollar as the de-facto world reserve currency"
July 16, 2008 at 12:41 am
A wonderful insight into how dollar came to dominate the world, and how USA bullies the OPEC, EU and every other body to have things their way.
However I disagree that Euro can be a replacement for dollar, just because they are printed by EU, not a ‘big bad bully’ like America.
July 16, 2008 at 7:02 am
1. Euro does not have politcal mandate. Sovereign guarantee even if forecast of default is there with usd but not with euro. Let us remember 2005 when euro/usd traced back to 1.16 from dec 2004 high of 1.37
2.If there is default, every nation will have to bear the brunt for holding usd- Nothing will happen to US – Instead of third world aid it will be us aid. The surplus generated by all nations will vanish. Dooms day is not that we should bother as rumours plays in markets than realities.
July 16, 2008 at 12:34 pm
…..”But, in late 1999, Euro was established and months later, Iraq announced that thereafter it would sell oil in euros only. Then, the U.S. for obvious reasons invaded it….”
Do you mean by this that It is the goal of the invasion of IRAK by the US ? I don’t think so .
August 6, 2009 at 9:41 am
the us is only dominanting by the muscle and money power and the us dollar is also been used by ohte countries for holding the same is their currency because all the oil supplies has to be pais only in us dollar. If the same is chaged and the oil supllies if are bokked in euro surly the us dollar willloose its dominance and euro will become the dominant currency in the near futre.
Not only that the us trillion dollar defict is being made good only but he paper currency which it is printing when ever needed and cirulating in the golbe without affecting their economy. This fiat currency is coming back to their country in the form of deposits which also the helpe the coutnry to reduice the currenct account deficit to a greater extent.
July 16, 2008 at 3:45 pm
Hi jean-michel
These might be one of those many reasons why US invaded iraq…….no one really knows anything – all we can do is guess!
August 3, 2008 at 2:50 am
If the reason for Iraqi invasion was to prop-up the Dollar, the plan has obviously failed. The US did not need to use Iraqi invasion to send a warning to other oil exporting countries like Saudi Arabia and other Gulf states. The US can easily threaten these defenseless countries without the use of military power.
Some commentators have also said that the establishment of oil trading exchange by Iran which plans to trade oil in currencies other than the Dollar is the real reason why US will attack Iran. In my view this analysis is also incorrect because the US realizes that an attack on Iran will send oil prices sky high which will threaten the US and world economy with a depression.
August 6, 2009 at 9:48 am
cerainly not I do not agree with you. The us has waged war on the iraq only because the iraq was the first country to revolt against the US And started booking the oil in euro instead of us dollar.This made US to think that if we allow the iraq to-day many other oil producing countries especially OPEC if started booking oil in euro or other courrency the domiance of the usd will be lost. Hence they waged a war against it but the fact stated was that iraq was having Weapon OF MASS dESTRUCTION (wmd)
August 3, 2008 at 3:08 am
Hi Gumnaam
When you say that US can threaten them with military power, maybe an Iraqi Invasion would be to issue a warning to saudi arabia and gulf states.
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January 5, 2009 at 5:34 am
1). Why an European or US worker for doing the same job in China or India should get more money while in these countries or in their native countries ??
2). Why Euro or USD is 40 to 80 times higher than these Asian countries for doing the same work or for eating similar food??
3). With this global meltdown, understand one thing that US economy and policies are myth even France as well.
You can’t fool all the people all the time. So, wake up and be self reliant and give importance to your own nation’s growth, self sufficiency, Agriculture and peaceful living rather than to learn to eat or snatch someones wealth or food in the name of AID or Technology support (like what US and Europe are trying to do) and such bla bla…. Nuclear Power does not get you food, instead invest in Agriculture and make everyone healthy by avoiding Junk food.
August 6, 2009 at 10:00 am
Dear Pkk,
I do agree with you that nuclear powerdoes not get us food. But you should also note that in many interior place in our country the electricity is not available and if the power genaeration is enhaced wit will bring the electricity and indirectly help in irrigationg the crop. In india mostly we have to depend on the Mosoon which when fails all business and service industry fails.
Under this cirsumstances the govt. should come forward to invest in agricultural infrastructue to enhance the produtivity, instead stop giving waver for all farmwers who are availing loans and in this also the true real farmers are not gtiing the benefits instead big politicians and rich farmers arereaping the benfits.
July 15, 2008 at 3:50 pm
True facts.
But I think the US is being underrated by the many self-proclaimed economists. There is a huge
gang of people making baseless predictions thinking they ‘know’ the economic situation!!
And by the way the change over to Euro as the de-facto currency doesn’t make much of a difference as it’s
only a trade currency. E.g. if tomorrow Japanese Yen is made de-facto, Japan would gain nothing out of it. Coz
when you buy or sell a currency, the currency involved gains nothing.