Dollar Domino Theory

Charles Shaw

CurrencyTrading.net reports that seven nations are actively consdering abandoning the dollar as a reserve currency: China, Iran, Russia, Saudi Arabia, South Korea, Venezeula and the Sudan.

Of course, this isn't really news. Two years ago the BBC reported on how many of the world's central banks are starting to look to the euro to fill their currency reserves instead of the dollar. 39 nations of the 65 surveyed had raised their euro holdings, with 29 cutting back on the US dollar.

Although the CurrencyTranding.net article claims this shifft away from the dollar is to "preserve assets," it seems pretty clear, given the list of nations, that it is also meant to send a clear message to the US that an attack on Iran would most likely trigger a dollar sell-off.

Former Secretary of the Treasury in the Reagan Administration, Paul Craig Roberts, takes it further by claiming the that the dollar is under a double assult from offshored American jobs and a ballooning budget deficit, made worse with the debacle of the War in Iraq. The US, Roberts warns, is at the brink:

"Full of hegemonic hubris, the US government does not understand that US power and hegemony have always depended, not on missiles and military force, but on the financial power conveyed by the dollar’s role as reserve currency. The reserve currency is world money, good in any country to pay any bill. The reserve currency country is not a debtor in the usual sense. As the reserve currency can be used to settle international accounts, the reserve currency country can borrow at will until lenders lose confidence in the currency. There is abundant evidence that the loss of confidence in the dollar is underway."

"When it is complete," Roberts warns, "the US will no longer be a superpower."