Will Arab countries stop using dollar in oil trading?

Daily Reports secret moves with china, russia
By Agence France Presse (AFP)

LONDON: The dollar’s future as the world’s top currency was thrown into doubt on Tuesday as a report said Arab state­s had launched secret moves with China and Russia to stop using the greenback for oil trading.

Arab states have launched moves with China, Russia, Japan and France to stop using the dollar for oil trades, British daily The Independent reported on Tuesday, but this was denied by Kuwait.

It comes as the United Nations on Tuesday called for a new global reserve currency to end dollar supremacy which has allowed the United States the “privilege” of building a huge trade deficit.

The Independent’s Middle East correspondent Robert Fisk wrote in his paper: “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.”

They would instead switch “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 Cooperation Council (GCC), including Saudi Arabia, Abu Dhabi, Kuwait and Qatar,” added Fisk.

Jane Foley, currency analyst at Forex.com, said the report was “another chapter in the plot against the dollar as the world’s dominant reserve currency.”

“The dollar may be falling from grace, but it remains the case that since there are no alternatives its fall from pole position will be slow,” she added.

Kuwaiti Oil Minister Sheikh Ahmad Abdullah al-Sabah denied the report, but on the foreign exchange market the dollar fell.

“Not at all,” Sheikh Ahmad said when asked by journalists to comment on The Independent story.

“At our level, no. We have never discussed or proposed this,” he said.

He added that he was “unaware” of any Gulf state making such a proposal.

Fisk, however, reported that secret meetings had been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which would result in oil no longer being priced in dollars.

“An eventual move toward oil being traded in a wider range of currencies is possible, but in our view, The Independent article makes it sound far more imminent than it likely is,” said Barclays Capital currency analyst Adarsh Sinha.

“In particular, the political consensus needed to achieve this would be very difficult, especially at a time when there is an apparent lack of consensus on more proximate issues for GCC countries, such as the Gulf Monetary Union.”

The report comes against a background of China and Russia agreeing earlier this year to boost the use of their domestic currencies in bilateral trade at the dollar’s expense.

Both countries have called for a revamp of the global financial system in the wake of the global economic crisis, saying there is a need for a new supra-national currency other than the dollar.

Meanwhile in Istanbul on Tuesday, UN Undersecretary General for Economic and Social Affairs Sha Zukang said “important progress in managing imbalances can be made by reducing [dollar] reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity.”

Zukang was speaking at the annual meetings of the International Monetary Fund and World Bank.