Petrodollar warfare

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Petrodollar warfare is a hypothesis that many international manœuvres in recent decades are taken to support the current dollar hegemony over other currencies. Supporters of this hypothesis believe that the U.S. dollar international value is determined by the fact that many key commodities (like energy in the form of oil and gas) are denominated in dollars. Supporters believe that if the denomination changes to another currency, for example the Euro, many countries would sell dollars and cause the banks to shift their reserves because they would no longer need dollars to buy oil and gas. This would weaken the dollar compared with the Euro in accordance with the law of supply and demand. The term oil currency wars is also used for the concept.

William R. Clark coined the term in his articles and it is now the title of his book, he is however, not the originator of the theory.

Congressman Ron Paul (R-Tex.) advocates the idea that empires have been upheld by continuing expansions and exploitations, and when they no longer could do that they collapsed. The U.S., he says, does the same by issuing dollars to the world that are not tied to a commodity such as gold. He foresees a collapse for the U.S. economy if the Dollar Hegemony is not upheld, like the empires of old, and proposes to return the dollar to what he sees as its constitutional form and value. According to Congressman Paul, wars and coups in oil producing states are happening partly to support the Dollar Hegemony.

This hypothesis does not seem to account for the fact that a declining dollar would lead to increased U.S. exports and decreased imports, which would decrease the United States trade deficit. On the other hand, the U.S. is highly reliant on import of oil, and a declining dollar would make oil imports more expensive for the U.S. Also, with the massive loss of US manufacturing jobs overseas, reliance upon exports would not be a sustainable economic base. It is disputed as to whether or not a falling dollar would actually hurt the American economy.

Contents

[edit] Background

Since 1971, when U.S. dollar ceased to be redeemable in gold, its value has not been explicitly linked to any commodity.

In 2000, Iraq converted all its oil transaction under Oil for Food program to Euros. When U.S. invaded Iraq in 2003 one of the first things it did was to return oil sales from the euro to the U.S. dollar.

Iran is planning to open an oil bourse denominated in euros. It was planned to open in March 20, 2006, but the opening was postponed without future date set. Proponents of this theory fear that it will give added reason for the U.S. to topple the Iranian regime and close the bourse or revert its transaction currency to dollars.

[edit] Criticism

Paul Krugman, economist and columnist at the New York Times, has printed a refutation of this hypothesis.

Krugman's refutation

[edit] Project Censored Award 2004

The topic of oil currency warfare under the title U.S. Dollar vs. the Euro: Another Reason for the Invasion of Iraq won Project Censored award in 2004. The essay was written by the author of the book Petrodollar Warfare, William Clark.

[edit] M3 data reporting discontinued

From March 23, 2006 the United States Federal Reserve (the "Fed") stopped reporting the M3 money supply data of the U.S. dollar. The Fed offers this brief note:

Discontinuance of M3
On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.
Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks).
M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.

The M3 money supply has been reported since 1959. Since M3 data was the main figure informing about the amount of dollars that the FED issued to markets, discontinuance of M3 data reporting created significant amount of controversy amongst financial elites.

Representative Ron Paul (R-TX) has introduced HR 4892 IH to mandate the Federal Reserve to continue to publish M3 on a weekly basis.

Full Press Issue: Source http://www.federalreserve.gov/Releases/h6/discm3.htm

[edit] See also

[edit] Further reading

  • Clark, William R.: Petrodollar Warfare : Oil, Iraq and the Future of the Dollar, New Society Publishers, 2005, ISBN 0-86571-514-9
  • Peter, Phillips (2003). The Top 25 Censored Stories: U.S. Dollar vs. the Euro: Another Reason for the Invasion of Iraq. New York: Seven Stories Press.
  • Engdahl, F. William, A New American Century? Iraq and the hidden euro-dollar wars, Current Concerns, No 4, June 2003

[edit] Links

[edit] Pro views

[edit] Critical views

[edit] Background information

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