OPEC and the Dollar Peg
As I've pointed out in the past, the 1974 US-Saudi Arabian Joint Commission on Economic Cooperation established the Dollar as the sole Monetary Instrument for the purchase of oil through OPEC and this action reaffirmed the US Dollar as the World's reserve currency after the years of currency turmoil brought about by Nixon yanking the gold-dollar peg in 1971.
This agreement has allowed the US Dollar to flourish for many years, as countries who needed oil had to earn or borrow dollars to buy oil and trillions of these Petrodollars were eventually recycled through New York and London banks -- allowing for the creation of new credit, holding dollar interest rates lower than they would have been otherwise, and helping to expand our credit/debt bubble economy.
I have also pointed out that: (with the exception of IRAN and mainly due to inflation pressures internal to their domestic economies: 1) Vietnam removed their dollar peg; 2) IRAN (an OPEC Nation) no longer accepts US Dollars for oil and opened their own Oil Bourse this year; 3) Kuwait (an OPEC Nation) has pulled their dollar peg; 3) Venezuela (an OPEC Nation) has been very vocal about moving to price oil in other currencies.
Well, the OPEC rhetoric is heating up:
U.A.E., Qatar May Drop Dollar Pegs Within Months
May 26 (Bloomberg) -- The United Arab Emirates and Qatar could abandon their currency pegs to the U.S. dollar in favor of a basket of currencies within months, and Saudi Arabia may follow the move late next year, The National said, citing a Merrill Lynch & Co. report.
Gulf states have been under pressure to drop their dollar pegs after inflation hit record levels. Kuwait dropped its currency's peg to the dollar last May, but others have all kept their links, citing the need to keep currencies fixed until they form a monetary union in 2010, and the limited inflationary impact of the weak dollar.
The heat is on, so today Henry Paulson, US Treasury Secretary and leader of the US Plunge Protection Team, met with Saudi's Finance minister to reiterate his typical B.S. propaganda about supporting a "Strong Dollar" and publicly stated that any dollar-peg transition would be a "sovereign" decision... Yea right! I wonder what is stated behind closed doors?
Paulson says strong dollar in US interest, Saudi peg 'sovereign decision' UPDATE
JEDDAH Saudi Arabia - US Treasury Secretary Henry Paulson reiterated his support for a strong dollar today after meeting with Saudi Arabia's finance minister, but he also said the decision on whether to maintain the Saudi currency's dollar peg is entirely up to that country's government.
Asked about increasing talk that Saudi Arabia and other Persian Gulf countries might decide to remove their currency pegs to the dollar, given the effects of its plunge, Paulson signalled the US would not try to deter them.
'That is a sovereign decision,' Paulson said, adding, 'the dollar peg I think has served this country and this region well.'
On the same question, Saudi Arabia's finance minister Ibrahim al-Assaf said 'We have no intention of de-pegging or revaluation.'
Well folks, as I see it, it's only a matter of time. We have very few barganing chips left and our geopolitical goodwill is completely shot. When the dollar peg is eventually removed and then when oil is priced against a "basket" of currencies vs just the dollar, we'll be praying for the God-send of $4 gal gas.
Hold on to your hats!