Monday, May 03, 2004

Oil, Iraq and the Dollar

Paul Krugman, that notorious Republican running dog, rebuts the conspiracy theory that America's concern to protect its gains from seigneurage led to the Iraq invasion.

The original article (which is unavailable on the web) appears to be driven by a strange mix of two conspiracy theories. The common and widely-aired one is that the Iraq war was launched for economic rather than the ostensible political reasons. What's interesting is that it also brings into play the sour suspicion that the weakness of the Euro for much of the time since its launch has been as the result of la speculation anglo-saxaine.

To Krugman's brief riposte, I'd add several other points.

First, the dollar has, for the moment, a dedicated constituency of buyers, particularly among Asian exporters seeking to maintain their foreign trade earnings, as I've argued in my post below.

Second, a rather obvious point, there is no straightjacket locking exporters in to holding dollars. Anybody receiving dollars for oil or any other commodity, is perfectly able to exchange them at a minimal cost for any other freely-traded currency, including euros; so far, only the prospect of lower investment returns in other markets and the intervention to keep the dollar strong, particularly against the Yen, has prevented this happening on a large scale.

While researching this, I came across George Monbiot's assertion in his book The Age of Consent that central banks and those of deveoping countries in particular must hold only dollars as reserves. He cites a paper published by the New Economics Foundation, but by my first reading , he has misinterpreted this research quite badly. I'll re-read this interesting paper and post some comments soon.

Peter 笔德