End of the U.S. dollar hegemony?

After the Second World War and following the fall of the Soviet Union in 1989, the so-called “dollar diplomacy”, a policy instituted by William Howard Taft and his Secretary of State Philander C. Knox and designed to enhance U.S. commercial investments in Latin America and the Far East, evolved into “dollar hegemony.”  Several years later, today, the American dollar’s great influence on the global economy and its dominance seems to be coming to an end.

The reason why the U.S. has been the depreciating value of the American dollar, especially in comparison to the Euro is mind-boggling to the American nation and the entire world specially the past few months. How long will this trend last? Is it a good thing or a bad thing?

To start with, what is the main reason behind the U.S.’s enmity for Iraq, Iran and Syria? It’s not the threat of the weapons of mass destruction that Washington claims those states posses. And it is not the noble mission of spreading freedom and democracy.

Numerous analysts explained following Iraq War and the chaotic situation the U.S. created there, that the main reason behind invading Iraq was the country’s massive oil wealth, which the U.S. and its European allies have no intention to give up.

Some actually suggested that the move that provoked Iraq War was the toppled Iraqi leader Saddam Hussein's decision to sell the Iraqi oil in Euros in the fall of the year 2000, challenging the dominance of the U.S. dollar.

But the issue has been revived back for discussion the last week in the wake of Syria’s decision to switch all of its foreign currency transactions from dollars to euros amid the recent political confrontation with the U.S.

Syrian sources said the latest move is aimed at protecting national economy, especially that U.S. laws stipulate that any financial transactions in dollars must pass through the U.S. banking system.

"It looks like a kind of pre-emptive action aimed at making their foreign assets safer, preventing them from getting frozen in case of any conflict," said a Middle East economist who asked not to be named.

If several countries decided to abandon the U.S. dollar as the reserve currency, all those dollars would come floating home, which will lead to massive inflation, Anti-war.com says.

On February 15, Ron Paul MD (R-TX), the only economist of the free market Austrian school in the U.S. Congress, gave a speech on the house floor titled "The End of Dollar Hegemony," during which he explained how Bretton Woods aggreement established the dollar as the world reserve currency, and moved most of the U.S.’s gold overseas, which eventually led to Richard Nixon’s government defaulting in 1971, and thus ended forever the promise to pay gold to bearers of U.S. dollars on demand, and switching the U.S. currency to government-monopoly money.

"In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA. After these attempts to nudge the Euro toward replacing the dollar as the world’s reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance,” Dr. Paul says, adding that “It’s become clear the U.S. administration was sympathetic to those who plotted the overthrow of Chavez, and was embarrassed by its failure. The fact that Chavez was democratically elected had little influence on which side we supported,

“Though we don’t occupy foreign countries to directly plunder, we nevertheless have spread our troops across 130 nations of the world. Our intense effort to spread our power in the oil-rich Middle East is not a coincidence. But unlike the old days, we don’t declare direct ownership of the natural resources – we just insist that we can buy what we want and pay for it with our paper money. Any country that challenges our authority does so at great risk.

Once again Congress has bought into the war propaganda against Iran, just as it did against Iraq. Arguments are now made for attacking Iran economically and militarily if necessary. These arguments are all based on the same false reasons given for the ill-fated and costly occupation of Iraq.”

Analysts have long explained that if the U.S. dollar remained the dominant currency, especially in oil trade, it will be greatly difficult and almost impossible to see how the U.S. can be dislodged from its position as the world's dominant economic power.

Washington has already sensed the potential threat posed by the euro.