Wednesday, March 22, 2006


Central Banks Mull Dumping Greenback

The Middle East News site has this news from the geopolitical front. "A number of Middle Eastern central banks said on Tuesday they would seek to switch reserves from the US greenback to euros. The United Arab Emirates said it was considering moving one-tenth of its dollar reserves to the euro, while the governor of the Saudi Arabian central bank condemned the decision by the United States to force Dubai Ports World to transfer its ownership to a ‘US entity,’ the UK Independent reported."

"'Is it protectionism or discrimination? Is it okay for US companies to buy everywhere but it is not okay for other companies to buy the US?' said Hamad Saud Al Sayyari, the governor of the Saudi Arabian monetary authority."

"The head of the United Arab Emirates central bank, Sultan Nasser Al Suweidi, said the bank was considering converting 10 per cent of its reserves from dollars to euros. 'They are contravening their own principles,' said Al Suweidi. 'Investors are going to take this into consideration (and) will look at investment opportunities through new binoculars.'"

"The Commercial Bank of Syria has already switched the state’s foreign currency transactions from dollars to euros, Duraid Durgham head of the state-owned bank said. The decision by the bank of Syria follows the announcement by the White House calling on all US financial institutions to end correspondent accounts with Syria due to money-laundering concerns. Syria’s Finance Minister Mohammad Al Hussein said: 'Syria affirms that this decision and its timing are fundamentally political.'"

I was somewhat surprised the Iran Oil Bourse was put on hold. I would have thought that would have been Iran's best passive 'weapon' against US.

Maybe there are behind the scenes negociations or simply that Iran couldn't get the infrastructure together.
I was reading a statement by the guy who came up with that idea and is in charge of running it. He said they aren't anywhere near getting it off the ground. But a CB can move it's cash easily, I would think.
Lou Minatti linked to any excellent analysis of why the Iranian bourse is an uphill struggle:
this is just a cover for moves I think they wanted to do anyways. I think many just can't wait for political cover so they don't have to explain they don't trust the dollar's value
The Saudi's are ones to talk. Their economy is pretty closed to outsiders.

Who owns their oil company? Not anyone in or from the US.

I don't blame them for being peeved over the ports deal, it just shows how valuable those dollars really are.

I ready that piece re: the Oil Bourse a couple weeks back and while I think there are some good arguments there, I think the writer underestimates the grwoing international fear of US dollar exposure, the motivations of the European market itself (which I would think would rather trade in Euros) and the technical abilities which Iran can muster: There is no shortage of technical talent available to Iran.

Furthermore, the assertion that oil bourses are exclusively in Western nations because they provide better "rule of law" is overstated. I would think that he who has the oil controls the shots.

But even if everything he says is spot on -- will it matter?

In other words, if Iran says, "You must use our bourse despite it being technically crappy and legally dodgy", I have a feeling they'll win the day. They have the oil. They control Hormuz.

When you say: "There is no shortage of technical talent available to Iran" do you mean home grown and of what technical variety? As a trained chemist (w/ ties to petrochemical industry), I observe that only recently did they produce a journal which was even worthy of being abstracted by the world community. More to the point, take look at the following link:

Notice the dearth of Iranian scientists and engineers who actually live in Iran. I'd wager that the bulk of their best people were educated outside of Iran too. So, if a showdown come, are all these people going to hop on a plane and head back to the home country? Or will they fight "us" from within. In my opinion, Iran proper has little actual claim to any technical talent. It may be growing, but it is still tiny. So, pardon the pun, but if Iran attempts to "cowboy" the oil market, they may well find a lot of native opposition from abroad.
The IAB is a political exercise, not a financial one, therefore it'll succeed by sheer will. By the same token, lots of countries will patronize just out of spite for the US. Hell, Europe will do it just to boost the Euro's status.

Beyond those with political motivations are plenty of others (read Asia) wanting to reduce their dollar exposure and secure future supplies from any and all energy producers.

Ultimately, the impact will be economic -- attacking the US via the USD -- but then that's the political goal, isn't it?
TJ said:
"The IAB is a political exercise, not a financial one, therefore it'll succeed by sheer will."

Does that conform to some kind of law or observation? Not to be contrarian, but I would think the opposite closer to the truth. Plenty of politically motivated endeavors ultimately fail for economic reasons.
The point I was trying to make was that politicians will gladly suffer losses in pursuit of their goals when private enterprises will not and can not. Governments worldwide (including our own) demonstrate that fact daily.
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