Abandoning The U.S. Dollar
7 Countries Saying Bye Bye To The US Dollars
1. Saudi Arabia: 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.
2. South Korea: In 2005, Korea announced its intention to shift its investments to currencies of countries other than the US. 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: China is threatening a “nuclear option” of huge dollar liquidation in response to possible trade sanctions intended to force a yuan revaluation.
4. Venezuela: 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.
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.
7. Russia: 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.
Why The Weak Dollar? First, there’s the difference between the interest rate in the United States (the one the Federal Reserve just dropped) and the interest rates of other central banks around the world. When the United States dropped its rate, other banks did not follow. Now the spread between the interest rate at the European Central Bank and the Federal Reserve is smaller than it has traditionally been, and that has weakened the value of the dollar against the euro.
Second, central banks around the world have been diversifying their holdings away from dollars to euros, British pounds and so on. That means there are more dollars out there in currency markets available to purchase. More dollars floating around means diminished value.
What’s This All Mean? 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. 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.
