Rarely does The Independent (remember it?) make such a big international — and financial — splash.
But its front-page article on Tuesday, by Middle East correspondent Robert Fisk, has certainly caused a stir.
In the report, headlined “The Demise of the Dollar“, Fisk claims secret talks have been taking place between Arab states and China, France, Japan and Russia, to stop using the US currency for oil trading and to move to a basket of currencies.
The proposed new basket supposedly includes the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for the six-member Gulf Cooperation Council (comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE).
Finance ministers and central bank governors in Russia, China, Japan and Brazil have been working on the scheme, says Fisk, citing unidentified Gulf Arab sources and Chinese banking sources in Hong Kong. The talks, he claims, “may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years”.
He adds:
The Americans, who are aware the meetings have taken place — although they have not discovered the details — are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs.
Despite Fisk’s — err, rather controversial reputation — the concept seems plausible enough (just) and may have even moved markets. As Bloomberg reports on Tuesday, the dollar declined against 14 of its 16 major counterparts, partly due to concerns about the Indie report.
Of course, the idea of replacing the dollar for oil trading is not new. Venezuelan President Hugo Chavez has been seeking Arab support for a proposed oil-backed currency for some time now. And there have even been attempts to produce a currency linked to commodity returns – for example the Trade Reference Currency.
So what next?
One realistic view was neatly summed up by Ben Simpfendorfer, chief China economist at RBS in Hong Kong, who told Bloomberg:
“Eventually there will be a move to non-dollar commodity contracts, and it may be the next big risk for the dollar… At the same time, I don’t want to overplay the importance of the story. There’s no credible sources there.”
Indeed. Fisk’s sourcing clearly didn’t include the Saudis, as per Bloomberg’s latest report on the Fisk fall-out:
Oct. 6 (Bloomberg) — Saudi Arabia hasn’t held talks with other oil producers and major consuming nations such as China on moving away from the dollar as the currency used to buy and sell oil, Saudi Central Bank Governor Muhammad al-Jasser said.
Al-Jasser, speaking to reporters in Istanbul where he’s attending an International Monetary Fund summit, was denying a report in the London-based Independent newspaper, which said today that Gulf oil producers and customers including China and Brazil had held secret talks on phasing out the dollar in oil pricing.
The Independent report is “absolutely incorrect” and there has been “absolutely nothing” of that nature discussed between Saudi Arabia and other countries, al-Jasser said.
It looks like we might have to wait a little bit longer for the demise of the dollar.
Related links:
A commodity anchor or oil as money – FT Alphaville
Energy as currency – FT Alphaville
Global currency it could happen – FT Alphaville
Copyright The Financial Times Limited . All rights reserved. Please don't copy articles from FT.com and redistribute by email or post to the web.