Will OPEC Declare U.S. Dollar to be "Worthless Paper" and Dump It?

AlterNet. Posted November 20, 2007.

Will OPEC Dump the Dollar?
By Hale Stewart
The Huffington Post

From the AP [Ed: Full story below]:

Iranian President Mahmoud Ahmadinejad said Sunday that OPEC's members have expressed interest in converting their cash reserves into a currency other than the depreciating U.S. dollar, which he called a "worthless piece of paper."

The hardline Iranian leader's comments also highlighted the growing challenge that Saudi Arabia, the world's largest oil producer, faces from Iran and its ally Venezuela within the Organization of Petroleum Exporting Countries.

"They get our oil and give us a worthless piece of paper," Ahmadinejad told reporters after the close of the summit in the Saudi capital of Riyadh. He blamed U.S. President George W. Bush's policies for the decline of the dollar and its negative effect on other countries.

"All participating leaders showed an interest in changing their hard currency reserves to a credible hard currency," Ahmadinejad said. "Some said producing countries should designate a single hard currency aside from the U.S. dollar … to form the basis of our oil trade."

Earlier this week there was a story that Saudi Arabia had rejected a proposal to dump the dollar at OPEC's latest meeting.

I can't speak to the various political games being played within the OPEC meeting. However, Iran and Venezuela are OPEC members and neither like the US. In addition, there is a strong argument for OPEC to dump the dollar. Here is a yearly chart of the dollar.

(click for larger version)

This is a bear chart, no doubt about it. Notice the following.

1.) The dollar has been dropping in value for the last two years.

2.) The simple moving averages (SMAs) are all heading lower.

3.) The shorter SMAs are below the longer SMAs

4.) Prices are below all the SMAs.

In short, this chart says sell me.

OPEC is getting paid in a continually devaluing currency, which no one wants. In addition, as the dollar has dropped, oil has risen over about the last month partially as an inflation hedge. That means oil has been rising because the dollar is falling.

In short, OPEC has a damn good point in getting rid of the dollar. The only reason to keep the dollar is Saudi Arabia will prevent the move, not out of economic interest but out of political will.

OPEC Interested in Non-Dollar Currency
By Sebastian Abbot
The Associated Press

RIYADH, Saudi Arabia — Iranian President Mahmoud Ahmadinejad said Sunday that OPEC's members have expressed interest in converting their cash reserves into a currency other than the depreciating U.S. dollar, which he called a "worthless piece of paper."

His comments at the end of a rare summit of OPEC heads of state exposed fissures within the 13-member cartel _ especially after U.S. ally Saudi Arabia was reluctant to mention concerns about the falling dollar in the summit's final declaration.

The hardline Iranian leader's comments also highlighted the growing challenge that Saudi Arabia, the world's largest oil producer, faces from Iran and its ally Venezuela within the Organization of Petroleum Exporting Countries.

"They get our oil and give us a worthless piece of paper," Ahmadinejad told reporters after the close of the summit in the Saudi capital of Riyadh. He blamed U.S. President George W. Bush's policies for the decline of the dollar and its negative effect on other countries.

Oil is priced in U.S. dollars on the world market, and the currency's depreciation has concerned oil producers because it has contributed to rising crude prices and has eroded the value of their dollar reserves.

"All participating leaders showed an interest in changing their hard currency reserves to a credible hard currency," Ahmadinejad said. "Some said producing countries should designate a single hard currency aside from the U.S. dollar ... to form the basis of our oil trade."

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