Will OPEC Dump the Dollar?

From the AP:

Iranian President Mahmoud Ahmadinejad said Sunday that OPEC's members have expressed interest in converting their cash reserves into a currency other than the depreciating U.S. dollar, which he called a "worthless piece of paper."

The hardline Iranian leader's comments also highlighted the growing challenge that Saudi Arabia, the world's largest oil producer, faces from Iran and its ally Venezuela within the Organization of Petroleum Exporting Countries.

"They get our oil and give us a worthless piece of paper," Ahmadinejad told reporters after the close of the summit in the Saudi capital of Riyadh. He blamed U.S. President George W. Bush's policies for the decline of the dollar and its negative effect on other countries.

"All participating leaders showed an interest in changing their hard currency reserves to a credible hard currency," Ahmadinejad said. "Some said producing countries should designate a single hard currency aside from the U.S. dollar ... to form the basis of our oil trade."

Earlier this week there was a story that Saudi Arabia had rejected a proposal to dump the dollar at OPEC's latest meeting.

I can't speak to the various political games being played within the OPEC meeting. However, Iran and Venezuela are OPEC members and neither like the US. In addition, there is a strong argument for OPEC to dump the dollar. Here is a yearly chart of the dollar.

This is a bear chart, no doubt about it. Notice the following.

1.) The dollar has been dropping in value for the last two years.

2.) The simple moving averages (SMAs) are all heading lower.

3.) The shorter SMAs are below the longer SMAs

4.) Prices are below all the SMAs.

In short, this chart says sell me.

OPEC is getting paid in a continually devaluing currency, which no one wants. In addition, as the dollar has dropped, oil has risen over about the last month partially as an inflation hedge. That means oil has been rising because the dollar is falling.

In short, OPEC has a damn good point in getting rid of the dollar. The only reason to keep the dollar is Saudi Arabia will prevent the move, not out of economic interest but out of political will.

Comments

[phamone]

A few years ago i met with a government minister in Oman. I asked him if his government has to do what the americans say. He said No, except for one thing. We told them that if they denominate their oil sales in any currency beside US dollars, we'll blow them away.

That's a credible threat, because most of the population lives along the coast. US navy could probably do it even when Rumsfeld was in charge.

So that's it. We use the military to cover the financial manipulation on which our economy depends.

[dogman44]

What a great thread this is. You folks give me reason to hope and believe in my people. Thank you, thank you. I can face another day.

[deminmo]

Maybe we are headed toward a world banking system based in Euros. Big banks in the European
markets are buying each other out, reducing
competition, gaining working capitol. China
is going after American investment companies
which may include The Carlyle Group. Alan
Greenspan even hinted in an interview he converts to another currency when investing.

[dogman44]

The rich are not our friends. They can rape
our country of its wealth and take their assets to some island or comfortable country and leave the rest of us here to live in the sewer they created. No more royalty, no more
ruling class, eat the rich!

[KRANKY]

Hale, the question is not, "Will OPEC dump the Dollar?"; but rather, "Will OPEC CONTINUE to Dump the Dollar?".
As you know, refusing to buy constitutes a SELL.
OPEC has been doing this for over two years...mostly our Saudi princes.
The American princes are complicite in this theft...the bush crime syndicate and co-conspirator Repukes.

Some day....
Some day these absolute traitors and murderers will have justice meted on their asses.
I may not live to see it, but there is certitude of it.

Evil rises to be cut down.
bush and the Repukes are complete EVIL.
Most of America knows it. It is only time until justice is served.

[rh654]

While not a fan of Bush - American's will have to realize that other countries can really compete with the United States and it isn't Bush's fault.

OPEC and the dollar goes back before Bush - OPEC has been thinking of moving off of using the American dollar for a long time.

The idea of pricing based on a basket of currencies rather than a single currency makes sense on many fronts.

[MrCoffeeCup]

Personally Charlotte, I don't give a damn! I have tons of unspent "Disney Dollars" available; plus the Old "E" tickets from way back when.

On top of this I have "Baseball Cards" "Comic Book Character Cards" and autographs from Elvis, Lucille Ball, Bono, and Jane Fonda, Fidel Castro, Hugo Chavez, Prince Abdullah, Jimmie Carter + Billie Carter beer can autographs . I can barter my needs with any nation or government. Gold is not necessary since I have untold books of "Green Stamps" and the old coupons from "Raleigh Cigaretts". Babe Ruth, and Homer Simpson are my aces.

So, let the Euro become King if necessary. Now what am I bid for "Captain Marvel and Flash Gordon Cards. (Ming the Merciless) is on special. I'll take two Batman and Luke Skywalker striking a pose!!!

[newsweek1945]

Man, don't we get it? bush took a "dump", it was our credibility and the dollar, and the World is not inclined or encouraged to reach down and touch it, let alone pick it up!! This little man has wreaked far-reaching damage to the country he did not fight for and the World which he thinks is his "orster".

[BRUMALIA]

There will be a time when the dollar becomes too costly for OPEC countries to hold on to, if it continues to slide or experience constant decline.Hence,the likelihood is great that OPEC could gravitate towards a stronger currency such as the Euro.The politics and economics of the neo-cons have certainly pushed us to the brink of the cliff.

[Bobzmcishl]

Our days as a superpower are numbered - we are heading down the same path that doomed Great Britain to second class world status - way too much debt incurred to fight wars. In GB's case, WWI and WWII. At least they were fighting the right wars. We are stupidly wasting national treasure and lives fighting dumb wars that go against our national interest. Ironically, that is what did Saddam in. He did not think the U.S. stupid enough to go to war with Iraq knowing what he knew. Now our national piggy bank is almost empty, our consumer spending is spent - the home equity piggy bank is no more and now other countries don't want to be paid with American monopoly money. The whole Bush charade is starting to collapse. The fed will find it difficult to keep decreasing interest rates and making our money even cheaper - the game is over but we don't know it yet. Next year we will be in a recession and the year after a Democrat will be trying to figure out how to get out of the financial mess Bush created. We are about to enter extended belt tightening time.

[wldnswmmr]

Noting that Hale's post has stimulated the brightest of the bright to comment at length on this absolutely crucial issue, I raise again a question that has been bothering me. The USA stopped publishing the M3 money supply in March, 2006. This comprehensive measurement includes so-called Eurodollars in banks in the United Kingdom. Between August 2006 and 2007, as Hale pointed out in another post, lo and behold, the UK became the biggest single purchaser of US Treasury "securities" (sic). They took up much of the slack caused by the disinterest of the Chinese and Japanese in buying more. Is there any possibility these two facts are connected? Is the US printing money, laundering it through the UK under cover of the vanished M3 metric, and buying its own debt? I realize this would require massive dishonesty at the highest levels of the Bush Administration, which is unthinkable, but...?

[Loki1967]

I personally have no problem with OPEC or any countries ditching the dollar. Greed always wins out over ethics or virtue. As a country the Bush and GOP arrogance has screwed billions of people. I am ok with having to suffer a bit to show its our turn to bear the brunt of poor fiscal management. I just hope we don't have a depression on the horizon, but even if we do...Bush earned every minute of it for us and everyone who voted for him even the first time should be ashamed.

[ajax2]

Hale, I wish you would have compared M3 with the Bush Dollar (.50 cents) fall. The relationship is a perfect fit.

[lefilmnoir]

Could this be by design to justify switching to the Amero? At any rate, we'll be hauling our play money around in wheelbarrows before this is over.

Part of the rationale for going off the gold standard in 1971 was that petroleum was traded in dollars.

Somehow I don't we're in a position to invade & occupy Venezuela, Saudi Arabia, or other OPEC countries who don't feel inclined to accept a worthless currency.

One good thing about these developments:

America won't be harassing Iran -- or anyone else -- for a long time.

[itmaybetoolate]

Did anyone see ABC news this morning? They did this very upbeat story on the plunging dollar. It's wonderful because all these folks from outside the US are flocking here to buy our crap! Amazing!!! They seemed excited about it!!