One of the most significant trends in the global economy in recent years has been the decline of the US dollar. It is a trend that has far reaching consequences for all the inhabitants of this planet. Since the US runs huge trade deficits with countries like China and Japan, the declining dollar will not be in the interest of the latter. Neither will it be in the interest of countries which hold most of their foreign exchange reserves in the dollar. A number of them are already feeling the effects of the diminishing value of their reserves. It is not surprising therefore those countries are converting part or whole of their reserves into other currencies, notably the euro. These moves have further weakened the dollar.
Since 2002, Iran, currently the world’s second largest oil exporter, has converted all its foreign exchange reserves to a basket of currencies, excluding the dollar. In the second quarter of 2008, it went further and decided to denominate its entire oil trade in currencies other than the dollar. Is it any wonder that Israel, the US’s closest ally, has become more bellicose in its threat to attack Iran in recent weeks? Of course, as in the case of Iraq, there are also other motives behind attempts by the US, Israel and their other Western allies to bring Iran to its knees.
The US knows that it is the dominant position of the dollar that enables it to exercise global financial and economic hegemony. It is because the dollar is the world’s reserve currency that the US has so much political clout in the international arena. This is why the dollar has been described as one of the two principal pillars of US global hegemony, the other being its military power.
For the US, any move by a major oil exporter to wean itself away from the dollar is a direct challenge to its hegemonic power. It is not difficult to fathom why the US is so obsessed with perpetuating the oil-dollar nexus. It is partly because most of the oil trade —- more than any other trade — is denominated in the dollar that the US currency is able to dominate the world economy. In fact, it was the US’s agreement with Saudi Arabia in 1974 that the oil trade would be denominated in the dollar which gave a huge lift to the dollar’s reign. The US will fight tooth and nail to ensure that that reign continues.
Citizen groups in both the Global South and the Global North should campaign with greater vigour to bring global hegemony to an end by weakening the role of the dollar as the world’s reserve currency. More oil producing countries should be persuaded to switch from the dollar to other currencies. In international trade, countries should shift to other currencies which are more conducive to their short and long term interests. If foreign reserves are still in dollars a concerted endeavour should be made to convert them into other currencies which will at least protect their value. Citizen groups should also encourage their governments and corporations to accelerate regional trade and investment which could be conducted in their own currencies. With the emergence of China and India as important economic players, ASEAN (the Association of Southeast Asian Nations) and other states in Asia should consider using one of the major Asian currencies for regional trade and not continue to depend upon the US dollar.
Quite apart from all these efforts, citizen groups should demand comprehensive reform of the international financial system. They should make it abundantly clear to all and sundry that the dollar can no longer serve as the world’s reserve currency. It has to be replaced. We should start working now towards a common world currency which is not linked to any particular nation or region that can be used for international trade?
Dr. Chandra Muzaffar is President of the International Movement for a Just World (JUST) and Professor of Global Studies at Universiti Sains Malaysia, Penang, Malaysia.