The Dollar, the Euro and War in Iraq

The Dollar, the Euro and War in Iraq

SANE Views

Vol.3, No.3, 30 January 2003

The information below is based on material sent to SANE by 
Richard Douthwaite's organisation FEASTA in Ireland which in 
turn obtained it from insights posted at the website:

www.praesentia.us 

It presents a devastating insight into President Bush's 
belligerent stance towards Iraq, one which would appear to be 
based totally on the economic self interest of the US. 

(editor - SANE Views)

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THE DOLLAR, THE EURO AND WAR IN IRAQ

The dollar is the world reserve currency. This gives a huge subsidy 
to the US economy because if a country wants to hold lots of dollars 
in reserve they must supply the US with goods and services in return 
for those dollars. In return the US just prints a few notes. The more 
dollars there are circulating outside the US, the more goods and 
services the US has imported virtually for free. This is how the US 
manages to run a huge trade deficit year after year without 
apparently any major economic consequences. No other country can run 
such a large trade deficit with impunity. It is in effect getting a 
massive interest-free loan from the rest of the world.

One of the primary objectives, if not the primary objective, of 
setting up the Euro was to try and get some of this free lunch for 
Europe. If the Euro became a major reserve currency, or better still 
replaced the dollar as the major reserve currency, then Europe too 
could get something for nothing.

This would be a disaster for the US. Not only would they lose their 
subsidy, which has been increasing in size and in importance to 
American economic well being as the years have gone by, but countries 
switching to Euro reserves from dollar reserves would start spending 
their dollars in the US. In other words the US would have to start 
paying its debts to other countries. As countries converted their 
dollar assets into Euro assets the US property and stock market 
bubbles would, without doubt, burst. The Federal Reserve would no 
longer be able to print more money to reflate the bubble as it is 
currently openly considering doing,

There is, however, one major obstacle to this happening: OIL! Oil 
is of course by far the most important commodity traded 
internationally, and if you want to buy oil on the international 
markets you usually have to have dollars.

Until recently all OPEC countries agreed to sell their oil for 
dollars only. This meant that oil importing countries, like Japan, 
needed to hold dollar reserves in order to be able to buy oil. So 
long as this remained the case, the Euro was unlikely to become 
the major reserve currency: there is not a lot of point to 
stockpiling Euros if every time you need to buy oil you have to 
change them into dollars. But in November 2000 Iraq switched to 
the euro, with potentially perilous consequences for the US. Only 
one country has the right to print dollars: the US! If OPEC were to 
decide to accept euros only for its oil, then American economic 
dominance would be over. Not only would Europe not need dollars 
anymore, but Japan which imports over 80% of its oil from the Middle 
East would have to convert most of its dollar assets to Euro assets 
(Japan is of course the major subsidiser of the US). The US on the 
other hand, being the world's largest oil importer would have to 
acquire Euro reserves, i.e. it would have to run a trade surplus. 
The conversion from trade deficit to trade surplus would have to be 
done at a time when its property and stock market prices were 
collapsing and its own oil supplies were contracting. It would be 
a very painful conversion.

The purely economic argument for OPEC converting to the Euro, at 
least for a while, seem very strong. The Eurozone does not run a 
huge trade deficit like the US, nor is it heavily indebted to the 
rest of the world like the US. Nearly everything you can buy for 
dollars you can also buy for Euros. Furthermore, if OPEC were to 
convert their dollar assets to Euro assets and then require payment 
for oil in euros, their assets would immediately increase in value. 
Also, since oil importing countries would be forced to convert their 
reserves into euros, whose price would therefore be driven up. OPEC 
could then at some later date back some other currency, maybe the 
dollar again, and again make huge profits. This would offer a 
virtually inexhaustible source of profit for OPEC.

But of course it would not be a purely economic decision. The 
Eurozone countries do not threaten Middle Eastern countries 
militarily as the US does. At the site

www.rferl.org 

there is an article, written at the time the decision was made, 
claiming the decision made no financial sense and would cost Iraq 
millions. According to one "expert" quoted in this article the 
decision to convert was made by people who "are not experts, they 
are not central bankers, they are not even oil men". At the time the 
article was written, the euro was worth 82 US cents. It is now worth 
about $1.05. So on economic grounds alone, the Iraqi decision has 
been a huge success (the $10 billion Iraqi fund at the UN, mentioned 
in the article, has apparently also since been converted). There may 
however be military consequences to it. The economic threat to the 
US may be influencing it in its belligerent stance towards Iraq.

One other OPEC country has been talking publicly about possible 
conversion since 1999: Iran. And of course it has since been included 
in the "axis of evil". 

Further information about this matter can be found at:

www.praesentia.us 

So, as Feasta sees it, this threatened war does not serve Irish or 
continental Europe's growth interests at all, when compared to the 
alternative of lifting sanctions. But a far better reason for 
opposing the war is that it is a blatant case of mass murder for 
profit.

Cóilín.