The demise of the dollar - This article requires a little bit of a discussion.  From the article.

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. (1)

How we got here:

If this report is true, to say this isn’t good for the dollar is an understatement.  If you haven’t read anything about dollar hegemony I would suggest that you do.  Also, if you haven’t read anything about the petro dollar and petro dollar warefare I would suggest that you do.  In a nutshell since our dollar is fiat money, meaning nothing is backing it’s actual value but the promise of the government, the only thing keeping the dollar’s value is the fact that oil is only sold in dollars.

What does all this mean?

I think that common sense would tell someone that since the Saudis are in control of the oil they would want a strong dollar and a dollar that retains its value.  However, with the spending spree that the US is on with an estimated nine trillion dollar deficit in the next ten years (2) the world is losing confidence in the dollar as seen by the following.

• UN is calling for new reserve currency saying, “The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the “privilege” of building a huge trade deficit.” (3)
• Dollar under scrutiny at G20 summit saying, “The embattled US dollar is expected to come under scrutiny at a summit of developing and industrialized nations following China-led calls to review its role as a reserve currency.” (4)
• China Urges New Money Reserve to Replace Dollar saying, “In a paper released Monday, Zhou Xiaochuan, governor of the People’s Bank of China, said a new currency reserve system controlled by the International Monetary Fund could prove more stable and economically viable.” (5)
• China backs talks on dollar as reserve -Russian source saying, “Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions.” (6)
• Gold hits record at $1,045, gains on report of dollar’s demise - ”Gold futures hit a new high on Tuesday, lifted by weakness in the dollar after Australia hiked interest rates and after a report that Gulf-area oil producers, along with China, Russia, Japan and France, are planning to eventually end dollar-based oil pricing.” (7)

What does this all mean?  From the looks of it a new reserve currency that is controlled by the IMF, which would mean to me that we would outsource our monetary policy to the IMF.  The IMF would issue the currency and be controlled by a very small group of people.  This small group of people would hold a massive amount of power over the world economy.  I see it as the Federal Reserve on steroids on a world stage.

Any thing positive?

There is some good news.  We have time to change things if the world decides to create a new world currency without the consent of the US.

Finance Minister Alexei Kudrin told reporters on the sidelines of the G20 finance ministers meeting that it would take up to 30 years to create a new super-currency, suggesting there was no unity in Russia on the issue. (6)

…

While few analysts believe that the dollar will be replaced as the world’s dominant foreign exchange reserve anytime soon. (5)

…

But he [Richard Cooper] said there were no feasible alternatives to the US dollar as a widely used international currency, discounting even IMF’s synthetic SDR currency, comprising a basket of the dollar, euro, yen and the pound.”The dollar will remain the dominant world currency, thanks to the stability of our political system and the rule of law that isn’t a feature of many other economies,” said Irwin Stelzer, director of economic-policy studies at the Washington-based Hudson Institute.

Some groups, he said, were buying euros and other currencies from time to time, “but not in amounts that threaten the dollar’s primacy.”

“Even the Chinese are stuck with nearly a trillion dollars worth of US bonds and are not likely to drive down the value of that hoard by selling large amounts of dollar-denominated assets”, Stelzer said. (4)

For now the dollar is fairly safe.  However, with the recent moves by the international community and the continues policy by the US government of intervention, spending, and isolation of other countries, I’m one to think that the US is only digging itself into a deeper hole.  A drastic course correction is in call for the US.  The question is; is the US going to do it on its own or is it going to be forced to change due to the actions of the international community that it can not control.

I should probably reserve my thoughts on Iran, Iraq, Afghanistan, and our isolation of ourselves to the rest of the world.  I should probably reserve my thoughts on Healthcare reform, Cap and Trade, and the Labor Union bills going through congress now.  However, I’m sure you can probably guess what my thoughts are so I’ll leave it at that.

UPDATE: Mike “Mish” Shedlock has a couple good blog posts with a different outlook for the dollar.  I would suggest taking a look at them.

• Ridiculous Hype Over Secret Oil Meetings
• Why Would Anyone Want To Hold Dollars?

External Sites:

• dollar hegemony
• petro dollar
• petro dollar warefare
• fiat money

Sources:

1. The demise of the dollar
2. Obama to raise 10-year deficit to $9 trillion
3. UN calls for new reserve currency
4. Dollar under scrutiny at G20 summit
   
5. China Urges New Money Reserve to Replace Dollar
6. China backs talks on dollar as reserve -Russian source
7. Gold hits record at $1,045, gains on report of dollar’s demise