Gold and foreign currency reserves denominated in dollars are rapidly depreciating. And oil, breaking records, is rising not only due to stock exchange speculation and political threats – the price is also being driven up by the constantly weakening American currency. What will happen if the world decides to live without the dollar?
As of today, half of all dollar bills printed in America go outside the US. Moreover, the amount of greenbacks in the global economy is constantly growing: from 1995 to 2006 – by 90%, or about 6.6% annually. Every day, about 35 million banknotes of various denominations are issued in the States, totaling approximately $635 million. Only about $800 billion in 'bucks' are in free circulation worldwide. And if earlier there was high demand for them, today there are many eager to get rid of the cheap currency.
The Chinese government has repeatedly made statements about the possible reduction of the share of dollar state savings. In the third quarter of this year, the volume of China's gold and foreign exchange reserves reached truly astronomical heights – $1.434 trillion. Every day this giant sum depreciates, so it's hard to watch calmly. Not only in China, but around the world, the dollar is the main reserve currency: more than 50% of the total reserves of all countries are in the 'green' zone. Russia, for example, has $400 billion, Japan twice as much. One can imagine what would happen if the world decided to present at least a third of this money to the States
You cannot simply dump all this mass at once. By the way, similar attempts have occurred in history. At the end of the 1960s, the French under General de Gaulle loaded all dollar cash onto a plane and took it to the US. Then the Americans promised to simply shoot down the plane, and the 'greenbacks' returned to Paris. Now the world is different, methods are different. But the goals are the same. 'Everyone is smoothly moving away through redistribution. The reserves of many countries are only shown in dollars, but part of them may already be converted into euros,' says expert Leonid Grigoriev. The process could accelerate if, for example, Arab countries stop supporting the dollar and revalue their national currencies. Talks about this began after the Saudi Arabian central bank refused to follow the US Federal Reserve System (FRS) and did not lower the discount rate. The Saudis are holding on for now, but Kuwait has already made its money more expensive, showing that it does not particularly need the dollar.
All this is, generally speaking, reasonable. After all, the Gulf states, almost all members of OPEC, are suffering huge losses due to the cheap 'buck'. Over 25% of Arab petrodollars are denominated in American currency, and their total reserves are three times greater than China's and amount to about $3.5 trillion. To combat rising inflation in these countries, part of these funds could be moved into the euro zone.
But the main concern of the Arabs is, of course, not inflation, but oil prices, which last week stopped a step and a half away from a hundred. With such fantastic market conditions, oil magnates could earn much more if they were not tied to the 'greenback'. However, hints at switching settlements to euros have been heard more than once. Thus, the Minister of Petroleum Industry of Qatar, Abdullah bin Hamad al-Attiyah, recently stated that the issue of setting the oil price in another currency is 'not yet on the agenda' of OPEC. According to experts, the key word in this statement is 'yet'.
Nevertheless, one should hardly expect any coordinated joint actions in this direction. The fact is that a massive exit from the dollar would lead to a collapse of the American and then the entire world economy. As serious analysts note, there are already plenty of prerequisites for this. The likelihood that the pace of economic growth in the US will slow down is quite high. And considering that the US GDP at current exchange rates reaches about a third of the world's, one can imagine what consequences this would have on a global scale.
Economic analysts give the most discouraging forecasts for the development of events under this scenario. Thus, the chief specialist of the analytical department of the MICEX, Denis Gains, said that in the event of the collapse of the dollar system, fragmentation would occur – the destruction of the global market that had been painstakingly built over many years. 'There will be a rollback to the boundaries of the post-war world,' he stated. Arkady Sizov, an analyst at a major financial company, said that the depreciation of the dollar would lead to a huge increase in instability in the global financial market. 'First the currency market will become destabilized, and then a chain reaction will begin in the stock and money markets,' he notes. A wave of bankruptcies will follow, the expert claims, reminding: 'When one of the funds of a French bank became insolvent due to the mortgage crisis in the US, all European banks stopped lending to each other.' The mass panic that gripped the calm British when the now infamous bank NorthernRock faltered is also fresh in memory.
The most interesting thing is that the States are actually not responsible for the dollar. According to US economic strategy, the amount of money issued depends on the needs of society and the economy, and therefore banknotes are printed endlessly, and there is no talk of backing them with resources. Until 1900, the American currency could be easily exchanged for gold. But from 1934 to 1975, such exchange became possible only for foreign governments. And since 1975 to the present day, the dollar is not linked to gold at all.
Novus Ordo Seclorum – 'a new order for the ages.' This Latin motto is written on the dollar under the pyramid. It seems that at the beginning of the 21st century, it becomes less relevant every day.
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