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increased pressure as the financial crisis allows emerging economies
greater influence on the world stage, analysts said. A report last
week in The Independent claiming that China, Russia and Gulf States
are among nations prepared to ditch the dollar for oil trades has
heightened the uncertainty surrounding the US currency's future.
The dollar slumped against rivals last week in the wake of the
British daily's controversial report. 'The US dollar is being hurt
by the continued talk of a shift away from a dollar-centric world,'
said Kit Juckes, an analyst at currency traders ECU Group. 'Three
conclusions stand out very clearly. Firstly, the shift in economic
power away from the G7 economies is continuing. 'Secondly, there is
a growing acceptance amongst those winners that one consequence of
this power shift will be to strengthen their currencies. 'And
finally, as long as the US economy is not strong enough for any rise
in interest rates to be conceivable for a long time, the dollar's
underlying downtrend will remain in place,' added Juckes. The
Independent, under the front-page headline 'The Demise of the
Dollar', reported last Tuesday that Gulf states, together with
China, Russia, Japan and France, were considering replacing the dollar
as the currency for oil deals. '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,'
wrote The Independent's Middle East correspondent Robert Fisk.
They would 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 Co-operation Council, including
Saudi Arabia, Abu Dhabi, Kuwait and Qatar,' added Fisk, citing Gulf
Arab and Chinese banking sources. The report was denied by a host
of countries, including Kuwait, Qatar and Russia, while France
dismissed it as 'pure speculation.' Even so, the United Nations
itself last week called for a new global reserve currency to end
dollar supremacy, which had allowed the United States the 'privilege'
of building up a huge trade deficit. UN undersecretary-general for
economic and social affairs, Sha Zukang, said 'important progress in
managing imbalances can be made by reducing the (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, whose
President Robert Zoellick recently warned that the United States
should not 'take for granted' the dollar's role as preeminent global
reserve currency. Meanwhile at a G20 summit in Pittsburgh last
month, world leaders unveiled a new vision for economic governance,
with bold plans to fix global imbalances and give more clout to
emerging giants such as China and India. Following the summit, US
Treasury Secretary Timothy Geithner repeated Washington's commitment
to a strong dollar. But last week the finance chief was left to
watch as traders used The Independent's report as an opportunity to
push lower the troubled US unit. The report 'has helped
concentrate the minds of traders and investors alike, and has given
them another excuse to take the dollar lower,' GFT Global Markets
analyst David Morrison told AFP. 'Despite what the Fed and other
central bankers say, a weaker dollar is desirable because it is
neccessary to rebalance the global economy. 'As long as the decline
is gentle and orderly, then they're happy. But aggressive selling
would spook the markets,' he added. Commerzbank currency analyst
Antje Praefcke agreed that the market's reaction was significant
because it showed that the dollar was on a downward trajectory.
'The questionable article in the Independent was of course
disclaimed,' Praefcke said. 'It is nonetheless an interesting study
of the pscychological factors which are currently putting pressure
on the dollar. Even if conspiracy theories turn out to be nonsense,
the dollar is subsequently able to retrace only some of its losses.'
