Iran announced yesterday ordering the central bank to direct foreign transactions and transform the state's dollar-denominated assets held abroad to the single European currency instead of the U.S. currency.
A hundred years ago the U.S. currency’s dominance was refered to as “dollar diplomacy”. After the end of the Second World War, and the fall of the Soviet Union in 1989, that policy evolved into “dollar hegemony.”
But after all these many years of great success, this “diplomacy” or “hegemony” seems to be coming to an end soon.
“Some banks abroad are also willing to go Euro in dealing with us and there is no problem if some others want to do business in other exchanges based on their preference,” said governor of the Central Bank of Iran (CBI), adding that the country’s FRF stands at $10 billion, indicating a 35 percent growth over last year.
It has been said that he who holds the gold makes the rules.
Will other oil producing countries in the Middle East, members of The Organization of Petroleum Exporting Countries (OPEC), follow the suit?
A switch by OPEC members from the U.S. currency to the Euro could enhance the value of the Euro, the new official currency of the European Union (EU) which first came into existence on Jan. 1, 1999, further, ending the U.D. Dollar supremacy.
And despite a claim by Monica Fan, currency strategist at RBC Capital Markets’ that the news from Iran had little impact on the market "as it had already been announced by the Finance Minister on Dec. 4 and an estimated 70% of Iran's $45.5 billion reserves are already held in non-dollar assets,"
the impact of Iran’s move on the dollar has immediately been felt.
Yesterday the dollar was slightly lower against its major counterparts, reversing early gains.
A day before Iran announced converting its dollar-denominated assets held overseas into Euros, Sultan Nasser al-Suweidi, the United Arab Emirates' central bank governor, said that "we're waiting for a clear trend to emerge before converting our reserves into Euros or any other currency."
The bank holds 98% of its reserves in greenbacks but plans reducing its dollar holdings to between 50% and 90%.
REPEAT OF IRAQ???
Analysts aroused fears over Iran’s move, warning it would prompt another U.S. war in the region. When other countries, like Iran, sought payment of oil in other currencies, most notably Euro, the punitive action was in order.
The American President George W. Bush's Shock-and-Awe in Iraq was not about Saddam's nuclear ambitions, or the alleged link to Al Qaeda network which the U.S. blames for September 11 attacks, it’s about defending the dollar, and setting an example that anyone who seeks payment for oil in currencies other than U.S. Dollars, which is what Saddam did in 2000, would be likewise punished.
But if the U.S. decided to commit the same mistake it made in Iraq again; i.e. invading Iran, it will definitely bring an end to its political hegemony not just the hegemony of its currency, in the region and the world.
History teaches that an empire should go to war for either defending itself or benefiting from war; otherwise, as Paul Kennedy stated in his The Rise and Fall of the Great Powers, "a military overstretch will drain its economic resources and precipitate its collapse".