November 6th, 2007 By Jessica Hupp

It’s no secret that the dollar is on a downward spiral.
 Its value is dropping, and the Fed isn’t doing a whole
lot to change that. As a result, a number of countries
are considering a shift away from the dollar to preserve
their assets. These are seven of the countries currently
considering a move from the dollar, and how they’ll have
 an effect on its value and the US economy.



   1. Saudi Arabia: The Telegraph reports that for the first time,
      Saudi Arabia has refused to cut interest rates along with the US
      Federal Reserve.

   This is seen as a signal that a break from the dollar currency
  peg is imminent. The kingdom is taking “appropriate measures” to
  protect itself from letting the dollar cause problems for their
  own economy.

   They’re concerned about the threat of inflation and don’t want
  to deal with “recessionary conditions” in the US.
  Hans Redeker of BNP Paribas believes this creates a “very dangerous
  situation for the dollar,” as Saudi Arabia alone has management of
  $800 billion.

   Experts fear that a break from the dollar in Saudi Arabia could
  set off a “stampede” from the dollar in the Middle East, a region
  that manages $3,500 billion.



   2. South Korea: In 2005, Korea announced its intention to shift
      its investments to currencies of countries other than the US.

    Although they’re simply making plans to diversify for the future,
   that doesn’t mean a large dollar drop isn’t in the works.

    There are whispers that the Bank of Korea is planning on selling
   $1 billion US bonds in the near future, after a $100 million sale
   this past August.



   3. China: After already dropping the dollar peg in 2005, China
      has more trouble up its sleeve.

    Currently, China is threatening a “nuclear option” of huge dollar
   liquidation in response to possible trade sanctions intended to force
   a yuan revaluation.

    Although China “doesn’t want any undesirable phenomenon in the global
   financial order,” their large sum of US dollars does serve as a
   “bargaining chip.”

    As we’ve noted in the past, China has the power to take the wind
   out of the dollar.


   4. Venezuela: Venezuela holds little loyalty to the dollar.

    In fact, they’ve shown overt disapproval, choosing to establish barter
   deals for oil. These barter deals, established under Hugo Chavez, allow
   Venezuela to trade oil with 12 Latin American countries and Cuba without
   using the dollar, shorting the US its usual subsidy.

    Chavez is not shy about this decision, and has publicly encouraged
   others to adopt similar arrangements. In 2000, Chavez recommended
   to OPEC that they “take advantage of high-tech electronic barter and
   bi-lateral exchanges of its oil with its developing country customers,”
   or in other words, stop using the dollar, or even the euro, for oil
   transactions.

    In September, Chavez instructed Venezuela’s state oil company Petroleos
   de Venezuela SA to change its dollar investments to euros and other
   currencies in order to mitigate risk.



   5. Sudan: Sudan is, once again, planning to convert its dollar holdings
      to the euro and other currencies.

    Additionally, they’ve recommended to commercial banks, government
  departments, and private businesses to do the same. In 1997, the
  Central Bank of Sudan made a similar recommendation in reaction to
  US sactions from former President Clinton, but the implementation failed.

    This time around, 31 Sudanese companies have become subject to sanctions,
   preventing them from doing trade or financial transactions with the US.
   Officially, the sanctions are reported to have little effect, but there
   are indications that the economy is suffering due to these restrictions.

    A decision to move Sudan away from the dollar is intended to allow the
   country to work around these sanctions as well as any implemented in the
   future. However, a Khartoum committee recently concluded that proposals
   for a reduced dependence on the dollar are “not feasible.” Regardless,
   it is clear that Sudan’s intent is to attempt a break from the dollar
   in the future.


   6. Iran: Iran is perhaps the most likely candidate for an imminent
      abandonment of the dollar.

    Recently, Iran requested that its shipments to Japan be traded for
    yen instead of dollars. Further, Iran has plans in the works to create
    an open commodity exchange called the Iran Oil Bourse.

     This exchange would make it possible to trade oil and gas in non-dollar
    currencies, the euro in particular. Athough the oil bourse has missed
    at least three of its announced opening dates, it serves to make clear
    Iran’s intentions for the dollar.

     As of October 2007, Iran receives non-dollar currencies for 85% of its
   oil exports, and has plans to move the remaining 15% to currencies
   like the United Arab Emirates dirham.


   7. Russia: Iran is not alone in its desire to establish an alternative
      to trading oil and other commodities in dollars.

     In 2006, Russian President Vladmir Putin expressed interest in
   establishing a Russian stock exchange which would allow “oil, gas,
   and other goods to be paid for in Roubles.” Russia’s intentions are
   no secret–in the past, they’ve made it clear that they’re wary of
   holding too many dollar reserves.

     In 2004, Russian central bank First Deputy Chairmain Alexei Ulyukayev
   remarked, “Most of our reserves are in dollars, and that’s a cause for
   concern.” He went on to explain that, after considering the dollar’s
   rate against the euro, Russia is “discussing the possibility of changing
   the reserve structure.”

    Then in 2005, Russia put an end to its dollar peg, opting instead to
   move towards a euro alignment. They’ve discussed pricing oil in euros,
   a move that could provide a large shift away from the dollar and towards
   the euro, as Russia is the world’s second-largest oil exporter.




  What does this all mean?



   Countries are growing weary of losing money on the falling dollar.

   Many of them want to protect their financial interests, and a number
  of them want to end the US oversight that comes with using the dollar.

   Although it’s not clear how many of these countries will actually
  follow through on an abandonment of the dollar, it is clear that its
  status as a world currency is in trouble.



   Obviously, an abandonment of the dollar is bad news for the currency.
  Simply put, as demand lessens, its value drops. Additionally, the revenue
  generated from the use of the dollar will be sorely missed if it’s lost.

   The dollar’s status as a cheaply-produced US export is a vital part
  of our economy. Losing this status could rock the financial lives of
  both Americans and the worldwide economy.


REF:
http://www.currencytrading.net/2007/7-countries-considering-abandoning-the-us-dollar-and-what-it-means/