Arab Central banks move Assets out of Dollar

[katty]

cont'd: http://news.independent.co.uk/business/news/article351127.ece
Arab central banks move assets out of dollar
By Philip Thornton, Economics Correspondent

Published: 14 March 2006

Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.

The United Arab Emirates, which includes Dubai, said it was looking to move one-tenth of its dollar reserves into euros, while the governor of the Saudi Arabian central bank condemned the US move as "discrimination".

Separately, Syria responded to US sanctions against two of its banks by confirming plans to use euros instead of dollars for its external transactions.

The remarks combined to knock the dollar, which fell against the euro, pound and yen yesterday as analysts warned other central banks might follow suit.

Last week the US caused dismay after political opposition to the takeover of P&O by Dubai Ports World forced DPW to agree to transfer P&O's US port management business to a "US entity" .

[MadMaddie]

1. Thanks for the information...

I knew I saw this article somewhere.....

[skylarmae]

2. wonder if that is why the dow is surging today Up 75.32 points

and strong all across the other boards as well.....

makes me wonder...

[BrklynLiberal]

3. Wasn't one of the reasons Bush hit Iraq to prevent Saddam from doing this?

Saddam was going to start trading his oil in Euros instead of dollars? So who is he going to attack for this?

[katty]

4. exactly!

[Bruce McAuley]

15. PetroEuros are anathema.

This story is only about central banks moving assets out of dollars into euros.
If some producer starts selling oil for euros, now THAT'S gonna knock our economic system into a cocked hat, for sure.
We would instantly become a second rate power, our money would be worthless with the debt we currently have.
We'd be bankrupt. And George is very aware of this.
Now if the Saudis started selling oil for euros, we would be history.
Best not to piss off our lenders, but George had no choice, it just looks bad to defend the same arabs who finance Osama(apparently).

Bruce

[rkc3]

5. So Arabs are upset over a business transaction that gets blocked,

but they don't have a problem with the US indiscriminately bombing civlilians or torturing Arab prisoners.

BTW, the article is a bit misleading. The title states they are moving funds. The article says they are considering the move.

[Poll_Blind]

6. This is a much more serious threat to us than any missile.

They have every right, as investors, to change the way that investments are handled. However, such a switch would be deleterious in the extreme to the sputtering smoking thing which passes for our economy at the moment.

PB

[MissWaverly]

7. they have 1% of our investments

it's not a life or death issue, despite all the media hype

[msgadget]

8. Good point

but the fear is of the idea catching on, of the ol' snowball affect. For the moment it makes no sense for others to lose money by following suit but this is something to watch. The WH must think it's a significant enough to spin:

Last week the White House told US financial institutions to terminate all correspondent accounts involving the Commercial Bank of Syria because of money-laundering concerns. Mohammad al-Hussein, Syria's finance minister, said: "Syria affirms that this decision and its timing are fundamentally political."

[MissWaverly]

9. I saw a info session on Jim Lehrer

something like 40% of our investments are in the hands of Western Europe, so unless
we let Bolton run amok, which is always possible, things are fairly stable considering
our eratic foreign policy.

[msgadget]

10. That is comforting, thanks

Ooh, except for having to rely on Bolton, of course!

[MissWaverly]

11. Remember, they spin to scare you!

I looked up a transcript of the show for you:

Foreign direct investment in the U.S., in American companies, real estate and other assets is about $1.4 trillion according to the Congressional Research Service. The overwhelming share of that, about 70 percent, is held by Europeans. Asia's share is about 15 percent.
Investment from the Middle East remains small, less than 1 percent, but it has been growing.

http://www.pbs.org/newshour/bb/terrorism/jan-june06/ports_3-10.html

[msgadget]

12. I really appreciate that,

thank you, MissW! You're right, Syria alone probably won't hurt us but, I have to say, MissW, this transcript actually justifies my attention to the dollar, this quote in particular:

ROBERT HORMATS: ... I don't think that they're intentionally going to dump the dollar or intentionally stop buying dollars because they don't want the dollar to depreciate dramatically, because that undermines their sales to the United States.

But I do think even small changes in the acquisition of dollars could push the currency down and could be very disruptive. So there are other alternatives to the dollar, but I don't see a dramatic dumping of the currency.


Again, that was very thoughtful, thank you. :hi:

[MissWaverly]

19. you're welcome

It pays to get advice from the experts
FDR, Fireside Chats edited by Russell D. Buhte & David Levy, U. of Oklahoma Press

Page 43: Assessing the New Deal, 10/22/33

"When we have restored the price level, we shall seek to establish and maintain a dollar
which will not change its purchasing and debt paying power during the suceeding generation."

"Our dollar is now altogether too greatly influenced by the accidents of international trade, by the internal policies of other nations, and by political disturbance in other continents. Therefore, the United States must take firmly in its own hands the control of
the gold value of our dollar. This is necessary in order to prevent dollar disturbances from swinging us away from our ultimate goal, namely, the continued recovery of our
commodity prices."

Page 44
"I made two things plain: First, that I pledged no miracles and Second, that I would do
my best."

[msgadget]

23. Thank you AGAIN, MissW

Really, I love this stuff...er, history! Ron Paul spoke last month about what happened after the gold standard. Obviously you already have the historic context but here 'tis:


...
The 1944 Bretton Woods agreement solidified the dollar as the preeminent world reserve currency, replacing the British pound. Due to our political and military muscle, and because we had a huge amount of physical gold, the world readily accepted our dollar (defined as 1/35th of an ounce of gold) as the world’s reserve currency. The dollar was said to be “as good as gold,” and convertible to all foreign central banks at that rate. For American citizens, however, it remained illegal to own. This was a gold-exchange standard that from inception was doomed to fail.

The U.S. did exactly what many predicted she would do. She printed more dollars for which there was no gold backing. But the world was content to accept those dollars for more than 25 years with little question-- until the French and others in the late 1960s demanded we fulfill our promise to pay one ounce of gold for each $35 they delivered to the U.S. Treasury. This resulted in a huge gold drain that brought an end to a very poorly devised pseudo-gold standard.

It all ended on August 15, 1971, when Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold. In essence, we declared our insolvency and everyone recognized some other monetary system had to be devised in order to bring stability to the markets.

Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it-- not even a pretense of gold convertibility, none whatsoever! Though the new policy was even more deeply flawed, it nevertheless opened the door for dollar hegemony to spread.

Realizing the world was embarking on something new and mind boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence “backed” the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished.
...

MissWaverly, you are my new best friend! Will you be my Condy? :) If the president can have a tutor, why o' why can't I?

[MissWaverly]

24. Thank you but I will be busy in the back yard

burying my old charm bracelet, it may be a valuable commodity soon.

:-)

[msgadget]

25. ROFL!

:hi:

[cliss]

14. Foreign holdings of US currency are much more than that.

Don't forget countries which are holding US currency or Petrodollars. Last month, there was an article about Iran pulling out its cash holdings in European banks. The reported amount was about $50 billion dollars.

Saudi Arabia has enormous Petrodollar holdings. I think at least $200 billion. Add up all the other Middle East countries, and now you've got some big numbers.

It's much more than 1%. I'd say closer to 20%. And yes, they can break our economy.

[katty]

16. yes, fiat petrodollars-lotsa them

[MissWaverly]

18. I think that will happen anyway

W are going to have to build our manufacturing center
from the bottom up. First we outsource everything abroad to get cheap labor. Then
the world finds better markets, countries with abundant resources, cheap labor and
cheap raw materials like China or aboundant oil like Venezuela, Iran, Iraq, and now
Mexico. They then go after this new market abandoning the US. So what do we have
left?

[MissWaverly]

17. I believe that the ports should be managed by US Ports

I understand there will be repercussions from GWB's horrendous foreign policy for the
last 6 years, there's very little the dems can do at this point, since the Republicans
are running the show.

[ktlyon]

20. Hartmann said US has failed to sell enough bonds to cover debt

for last two months.
Sounds like the world is having second thoughts about buying our debt.

[oblivious]

22. Two billion here, 5 billion there, 35 billion next - it adds up....

Venezuela 5 billion in 2005; maybe 25 billion this year?

"I'm ready right now with the Venezuelan central bank ... to move $5 billion (euro4.15 billion) (of Venezuelan reserves), to a South American bank," Chavez said.
http://www.apfn.net/messageboard/10-02-05/discussion.cgi.16.html

Syria switches from dollar to euro

Syria has switched the primary hard currency it uses for foreign goods and services from the U.S. dollar to the euro in a bid to make it less vulnerable to pressure from the U.S.
http://seattletimes.nwsource.com/html/nationworld/2002806150_wdig15.html
http://english.aljazeera.net/NR/exeres/ABA36728-9F9D-4A2C-8F37-9C3230B7E971.htm

Putin: Why Not Price Oil in Euros?
...Almost two-thirds of the world's currency reserves are kept in dollars, since oil importers pay in dollars and oil exporters keep their reserves in the currency they are paid in. This effectively provides the U.S. economy with an interest-free loan, as these dollars can be invested back into the U.S. economy with zero currency risk.
http://www.globalpolicy.org/socecon/crisis/2003/1010oilpriceeuro.htm

[acmavm]

13. Regardless how minimal their investment is, the very idea

that they should be able to determine whether or not a Middle Eastern country with ties to terrorist organizations, money laundering, drugs, whatever, should be able to determine who controls the ports, then exits and entrances into our country is bullshit. For them to think that they should be able to overrule the American public on this issue shows you just EXACTLY what we would have been in for if they did get this deal.

[RazzleDazzle]

21. MORE validation of how unsafe handing infrastructure to foreign

entities is, how vulnerable it makes us, how damaging to national security.

We pissed them off and now they intend to get even, or retaliate in SOME way. That's not the kind of people you want protecting and running your ports or anything else. You wnat those people at arms length, and then some.

What folly for ANYone to think this was ever a good let alone great idea, or one that the American people would buy into. Most of us aren't even the least bit comfortable knowing that there are British firms involved in our ports, let alone Chinese and God know who else. No, these things and ALL infrastructure AND industry necessary for our basic well-being need to be in American hands -- not out of any xenophobia, but out of common sensical approach to the reality of who can be trusted and under what conditions they might not be able to be trusted. We were at war once with England, and frankly things got a little tense during our current wars in which they're participating -- and it's not over yet. You never KNOW when you and an ally are going to part ways, or see things differently enough that you need to start protecting your flank.

Especially when you've got a madman at the helm.