The bottom line

On Wall Street as well as on Main Street, it is increasingly becoming common knowledge that since 2001 the United States’ once almighty dollar has lost more than half its purchasing power against the euro and inescapably is fast turning into the “new American peso.” If six years ago a euro could be purchased for 86 cents, today it costs $1.40 to obtain the same euro. But it is not just against the euro that the dollar is losing ground – it has depreciated in value against a host of other major international currencies and even minor ones like the peso of the Philippines.

The downward direction of the value of the U.S. dollar among most of the international currencies could be theoretically the result of many economic factors such as a lower rate of labor productivity, a lower interest rate or the arbitrary political hurdles raised in the way of foreign capital to purchase a commanding share of U.S. equities. But aside from the above probable causes, the overwhelming pressure on the U.S. dollar comes from the U.S.’s tremendously huge foreign debt. There is an inverse relationship between the quantity borrowed by the U.S. from foreign sources and the value of the U.S. currency: the more the U.S. borrows, the lower the value of the U.S. dollar tends.

Last year, the U.S. ran a current account deficit of $811 billion, or 6% of the Gross Domestic Product (G.D.P.), which brought the U.S. net foreign debt to $2.5 trillion or close to 20% of the G.D.P. Presently foreign investors own a record 80 percent of the Treasury notes due in 3 to 10 years. To show the depth of U.S. dependency on foreign financing, it is crucial to note that international investors own $672 billion of the $835.4 billion Treasury securities, according to Lawrence Dyer, a strategist at HSBC Securities USA in New York.

Without an exaggeration, the U.S. is the world’s largest debtor, caused by disproportionately consuming other nation’s goods and resources. This trend has practically become irreversible. It is absolutely clear that the U.S. has been living beyond its means, along with the heavy burden of the wars on its economy and financial system.

In the current situation, as the dollar drops in value, foreign investors like Japan, China and the Persian Gulf states could be less willing to purchase U.S. government-issued notes and treasury bonds. This time around the U.S. could be denied the foreign capital flow needed to cover its current account deficit, expected to reach $850 billion this year.

U.S. Taxes the World
The ever-shrinking purchasing power of the dollar for the Organization of the Petroleum Exporting Countries (OPEC) who were led to accept only the U.S. dollar for the export of their oil and other strategic resources, and for all those countries that had to convert their own currencies into U.S. dollars in order to be able to purchase their needed oil results in two-tier losses.

The first category of loss is incurred by the oil purchasing countries which have been forced to convert their national currencies into the U.S. dollar in order to be able to purchase their needed oil from the highly centralized energy markets of New York and London. Oil exchange as an on-going process coupled with ever-increasing demand and rise in prices has led into an ever-increasing support for the value of the dollar and in turn a downward pull on the currencies of the oil-purchasing nations.

The second category of loss is incurred by the oil-exporting countries through the constant depreciation of the U.S. dollar. Accepting the idea of the U.S. dollar as the world’s sole reserve currency, many oil-exporting countries kept their oil income in the form of the dollar for a long time which has resulted in a heavy loss in its purchasing power vis-à-vis other commodities.

On the world scale, the gain for the U.S. and a gigantic loss for the rest of the world have been nothing less than two-tier taxation by the United States levied against the rest of the world. Yes, an empire was born that taxed the rest of the world through making the dollar be the world reserve currency.

In his “Economics of Empires” article, Krassimir Petrov wrote:

“A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations…one part of the subject taxes went to improve the living standards of the empire; the other part went to strengthen the military dominance necessary to enforce the collection of those taxes.”(1)

US-Saudi Shady Deal
In the case of the U.S., indirect taxes were imposed on the rest of the world when in 1972-73 Washington made an iron-clad arrangement with the King of Saudi Arabia to the effect that the U.S. government under all circumstances would keep the House of Saud in power in exchange for accepting only U.S. dollars for its oil.

Given the U.S. heavy dominance over the decision-making process of the central governments of the oil-producing countries in the Middle East, the rest of the members of Organization of the Petroleum Exporting Countries followed suit. From then on until recently, oil in the world replaced the gold which was agreed to be the backing of the dollar under the Bretton Woods Agreement signed by the victorious powers of WWII in 1945.

In the last half a century if any oil-producing country around the world demanded a currency other than the U.S. dollar for its oil, the U.S. Central Intelligence Agency (CIA) made sure that the head of such government would learn either through political pressure or military intervention, to change his mind. This is precisely what the U.S. did to Iraq and Saddam Hussein when he decided to demand euro in place of the U.S. dollar.

Given the massive trade and budget deficit, the U.S. has become increasingly dependent on the status of the dollar to remain the world reserve currency. In June of 2006 the U.S. currency accounted for two-thirds of all central bank reserves worldwide. This reserve status means that the dollar is constantly in demand, regardless of the underlying weakness of the U.S. economy. This status has been increasingly a target of criticism by the governments of other major currencies.

In his annual State of the Nation address to both houses of parliament on May 10, 2006, President Putin said, “The ruble must become a more widespread means of international transactions. To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in rubles.”(2)

Russia’s share of the world’s trade in oil export is 15.2%, Iran’s 5.8% and Venezuela’s 5.4%. Iran has the world’s largest proven oil reserves after Saudi Arabia and the world’s second largest gas reserves after Russia. Iran’s geo-strategic position in the Persian Gulf and its already-existing vast network of pipelines makes it one of the major players in the energy world.

Iran’s Oil Bourse
Over two years ago, Iran announced that it plans to create an oil market, Iran Oil Bourse (IOB) which would trade for oil in euro instead of the U.S. dollar. It goes without saying that if such a market for oil and gas materializes in a reasonable time period; it will compete against New York’s Energy Market (NYMEX) and London’s International Petroleum Exchange (IPE). But more importantly the exchange of oil for euro becomes a serious challenge to the hegemony of the dollar as a world reserve currency and could spell a beginning of an end to the American empire.

Finally, on October 2, 2007, Mohammad-Ali Khatibi, deputy head of the National Iranian Oil Company (NIOC), in charge of the marketing announced that Iran has drastically lowered the use of the U.S. dollar in payment for its oil export by 15%. Khatibi was reported as saying that “Iran is selling about 85% of its oil in the non-dollar currencies,” nearly 65% in euro and soon 20% in yen. In July, the NIOC requested from its customers in Japan who import over 300,000 barrels per day (bpd) of Iranian oil, to pay in yen.

A switch in currency by Nippon Oil and other Japanese oil refiners to yen has helped Iran to achieve its goal of reducing its exposure to the dollar and as a result, in the period over the last two years it has avoided the loss emanating from the constant depreciation of the dollar. The switch from dollar to yen was not an easy decision for Japan to make, knowing that the U.S. applies all sorts of pressures on the world financial markets and threats against individual state apparatuses, wanting them to dump the idea and refrain from paying in currencies other than the dollar, although paying in their own national currency is naturally in their best interest.

It is not a secret to anyone that Iran is well-positioned with regard to its foreign currency reserves. Its total reserves held in foreign banks have risen by 37% over the past year to the level of $65 billion by the end of June 2007. Iran’s demand for currencies other than the dollar for its oil is another reason for the United States’ aggressive polices towards that country. But for many reasons, we all know that it can’t do to Iran what it did to Iraq.

(1) The Proposed Iranian Oil Bourse, by Krassimir Petrov
(2) The Collapse of the Petrodollars Looming, Dave Kimble

About the author

Ardeshir Ommani is a writer and an activist in the anti-war and anti-imperialist struggle for many years, including against the Vietnam War. Ardeshir is a co-founder of the American-Iranian Friendship Committee (AIFC) which strives to build a movement promoting peace and preventing a U.S.-led war on Iran. See , where news and analysis of U.S.-Iran’s relations can be found, along with observations of life in Iran based on recent visits to Iran. Ardeshir helped launch the successful campaign, the very first Iran internet anti-war campaign. In the 1960’s, he was a co-founder of the Iranian Students Association (ISA), which contributed to the struggle against the Shah of Iran, a U.S. puppet. Two of his recent articles: “Emergence of a United Front Against Bush” can be viewed at and “U.S. Arms Sales – Source of Instability” at

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