Goodbye $US, hello new dinar?
For sixty years oil has been sold for US$ exclusively, resulting in very large holdings of US$ in the hands of the oil-exporting nations. Together with the dollars earned by Chinese and Japanese exporters, there are now about 9 trillion US dollars offshore. This does not cause inflation in the US provided that the dollars are held as national reserves by each country and not spent or converted to other currencies. Some of the dollars have been so used, resulting in an accelerating fall in the value of the dollar and a rise in the value of the euro. Nobody likes this, including the Europeans.
Consider the position of the countries which hold those offshore dollars (offshore dollars= M3. To find out exactly how many dollars that is see these people). Their real worry is the loss of value of their dollar mountains. If they dump dollars their value falls even faster. If they buy US Treasury bonds as they have in the past, which in effect is loaning the dollars back to the US, the low interest rate return does not cover the depreciation. If they spend them on US stocks or real estate they could lose in a big way in those falling markets. When they spend them on real commodities such as oil or gold, prices skyrocket, which is also inflation. The euro-conversion option is maxed-out, the Japanese and Chinese economies have too many dollars already thanks, and they have already bought every bit of available US-manufactured military hardware. There is nowhere left for those dollars to go, and the tipping moment when the dollar's decline becomes the dollar's plummet seems near.
One development may offer a way out. The Gulf states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates which form the Gulf Cooperation Council intend to create a new currency. This would be backed by their US$ holdings. It also seems probable that oil sales would be denominated in this new currency. By re-badging their US$ as say "Gulf Dinars", they would be decoupling "their" US$ from the domestic US$, and they would retain or gain value independently from the US$.
This move would also benefit all other world economies: there would be an alternative to converting to euros, reducing the upward pressure on that unit. Other nations, particularly China, could convert reserves for use in oil purchases knowing that they would not lose value. The Gulf nations would be a step nearer genuine sovereignty and independence; the US would have to pay for oil with export-earned dollars rather than just printing them, and the world would have a new reserve currency nominally run by people for whom usury is a sin.
It could also have the paradoxical effect of reducing the inflationary pressure on the US domestic economy, because other nations would no longer be offloading the national currency.
