When it comes to the Middle East and global geopolitics, there is the sense to many that more is going on that meets the eye. One issue that gets sidelined in all the propaganda and disinformation campaigns from both camps is the fact that as much as oil has been touted as central to ongoing geopolitics, which it is undoubtedly, what often gets left out of the mainstream media is the currency wars also related with the sale and supply of oil, and how that has also been a cause for disputes between nations.
To put it into perspective, Saddam Hussein’s brutality as a dictator has been much documented and obviously played up by the West to gather support for campaigns against his regime. His gross human rights violations against Iraqi Kurds are not to be downplayed in anyway; however, as much as the U.S. has been criticized for invading Iraq under false pretenses, few people spoke about the fact that Saddam Hussein had announced that Iraq would no longer trade oil in dollars and would switch to the Euro shortly before the US invasion of Iraq.
Another example is Muammar Gaddafi. His dictatorship over the people of Libya lasted decades. He is blamed for the Lockerbie bombing and many other foreign and domestic acts of violence. When the world was seemingly witnessing a turning page regarding Gaddafi’s relationship with the west, however in what became known as the Arab spring, an anti-Gaddafi movement suddenly became the rallying point for a NATO campaign against the regime of Muammar Gaddafi.
Again what seemed to escape the mainstream media was that Gaddafi was championing hard for a Pan-African currency called the Gold Dinar, reminiscent of the Islamic dinar that was once a global reserve currency very much like the dollar is today.
More recently, the Iranian government also decided to trade oil in a basket of currencies ditching the dollar as retaliation against sanctions imposed by the West because of its nuclear ambitions and now you see where this is going- Iran has been the poster country for George Bush’s “Axis of evil”.
So what’s the big deal?
Well, the thing is, after World War 2, at a meeting at Bretton Woods New Hamshire, US economic minds convened to determine the post-war economic order of the world and US dollar was deliberately cemented as the Global reserve currency to replace the British Pound which until then was the de-facto global currency because of the leading role the London central bank had over the central banks of the dominions of the British empire. With the destruction of Europe and the disintegration of the British Empire, the US central bank guaranteed to sell the reserve dollars of other banks at a fixed rate for gold.
Okay, let’s unpack that a bit. Basically, countries need to keep reserves of other currencies for the purposes of world trade. Now due to the fluctuating nature of currencies, global trade is likely to be dominated by a currency which has strong stability and from an economy that is seen to be the most stable, this is usually the hegemonic power of the times for the simple reason that it is backed by the most security.
Another factor that characterizes a reserve currency, is the demand for its country’s products. After World War 2, the Dollar surpassed the Pound in global demand because most new technological breakthroughs originated in the United states. This meant other countries had to convert their money to Dollars to access new American technology. Click here for an article explaining other factors that make a currency a world reserve currency for a more detailed explanation.
And so what?
For our present purposes, it suffices to say that having your currency as a global reserve currency comes with its own perks- perks that the US are not happy to part with because it basically allows them to borrow money at a cheaper rate, bringing in an estimated $100 billlion dollars annually.
Since global trade in oil has been done through Dollars for much of the post war period, this means the US can get oil at a cheaper rates. When economies threaten to trade with another currency, this questions the primacy of the Dollar as the world’s reserve currency and is literally a threat to the American economy which has over the years lost its status as a producing nation. As a result, the US will be greatly impacted if the US dollar is dumped by the rest of the world. In light of the Global financial crisis due to reckless borrowing in the U.S., this is probably more a matter of time than a worst-case scenario.