Any Iraqi who tried to buy a car or a house this week was in for a nasty shock. Last Sunday, the Iraqi government announced a ban on personal and corporate transactions in US dollars.
usually Iraqi Larger purchases are usually made in dollars. As the country’s dinar continues to devalue, buying a car or a house requires several large garbage bags filled with dinar notes. So they usually use a wallet full of dollars instead.
For decades, the US dollar has been the currency of choice in the Middle East when there are not enough dirhams, dinars, riyals and pounds. But that may be starting to change. Over the past few months, senior Middle Eastern politicians have made statements suggesting that the dollar’s dominance in the region could wane.
In Iraq, US officials were making it difficult for dollars to flow into Iraq. He was apparently concerned that too much US cash was being smuggled into its sanctioned neighbor, Iran. But tacitly supported by many Iraqi politicians. This dollar shortage has destabilized the value of the Iraqi Dinar pegged to the US currency.
That instability led to last weekend’s ban. In February, also in the wake of the US currency crisis, Iraq announced a deal with China. Yuaninstead of dollars.
Middle East countries looking for alternatives
Earlier this year, Saudi Arabia’s finance minister said the country was “open” to selling oil using different currencies such as euros and euros. Chinese yuan. The United Arab Emirates said it would cooperate with India, using indian rupees. Last year, Egypt announced plans to issue bonds in Chinese yuan, financial instruments that help finance the government. It had already issued corporate bonds in Japanese yen.
In addition, some Middle Eastern countries – Egypt, Saudi ArabiaUAE, Algeria, bahrain — says it wants to join the geopolitical bloc known as BRICS, an acronym for Brazil, Russia, India, China and South Africa. Russia has already said the alliance will be discussed at an upcoming meeting in June. Creation of a new kind of currency For cross-border trade between members.
From 2021, the UAE will also: Bank for International Settlements based in Switzerland, a kind of central bank for central banks. The project is looking at digital cross-border payments that may circumvent the dollar. Other participants are Thailand, Hong Kong and China.
Is the US Dollar Done?
These alternatives to the US dollar have been making a lot of alarming headlines lately. “Is Dollar Dominance Under Threat?” new york times asked in february. “Prepare for a Multi-Currency World” of financial times Warning in March. “The de-dollarization is progressing at an ‘amazing’ pace.” bloomberg I wrote this at the end of last month.
The US dollar currently accounts for about 58% of the world’s official foreign exchange reserves. bloomberg report According to that article, it’s down from 73% in 2001. In the late 1970s he was 85%.
But most experts argue that the move away from the dollar is happening much more slowly than recent headlines suggest. And this certainly applies to the Middle East as well.
Dollar still rules in the Gulf
Since the 1970s, Gulf oil producers have partnered with the United States, with the United States providing security and countries such as Saudi Arabia and the UAE exporting oil. Most Gulf countries, with the exception of Kuwait, peg their currencies to the US dollar.
“One of the biggest indicators of a real shift away from the dollar will be the de-pegging of these currencies,” said Hassan Alhasan, a Middle East policy researcher at the London-based Institute for International Studies. bottom. “But so far we haven’t seen anything like that.”
Asked whether the allegations of Arab leaders signaled the end of the dollar in the Middle East, Daniel McDowell, professor of political science at Syracuse University in New York, said: “The key words here are ‘statement’ and ‘potential ‘,’ he said.
“Statements are easy, but actions are harder,” he told DW. “For an oil-producing country like Saudi Arabia, this kind of rhetoric and agitation is also a way to get the attention of the United States. unknown.”
McDowell doesn’t rule out the possibility that the dollar’s dominance will one day disappear. “All empires eventually fall,” he quipped. But for now, “a lot of this meeting is symbolic and political. The changes we’ll see will be subtle and slow.”
Motivated by the Ukrainian War
All of the experts DW spoke to agreed that they believed there were two main reasons Middle Easterners threatened to use other currencies.
First they said it had something to do with: russian ukrainian war.
McDowell believes sanctions are a very important part of the debate. In his new book, Bucking the Buck: US Financial Sanctions and the International Backlash Against the Dollar, he makes a similar point: “The more the United States wields the dollar as a foreign policy weapon, the more its adversaries become It will further move the international situation of Convert economic activity into other currencies. ”
“A lot of Russian money is now going through countries in the Middle East and Asia,” Alhasan explained. “Essentially they are countries that have chosen not to comply with or enforce U.S. or European sanctions.”
But if sanctions against Russia were to be tightened further, turning into so-called secondary sanctions, these countries would find it even harder to circumvent them. Secondary sanctions also punish third parties (states or companies) that cooperate with the sanctioned subject. Anyone wanting to do business with the US or the European Union will find it difficult to avoid secondary sanctions.
“So governments concerned about U.S. sanctions are increasingly thinking about how they can stay ahead of the curve, even if they haven’t yet been prepared or interested in radically moving away from the dollar. There is,” reasoned Mr McDowell.
Threats to oil business
Al-Hasan offers a second reason why some Middle Eastern countries may want to move away from the dollar. “I think there is a sense that the US is trying to do this.” Rewrite the rules of the global oil market It is aimed at the interests of Russia, which poses a strategic threat to Saudi Arabia,” he argued.
In March, Saudi Energy Minister Prince Abdulaziz bin Salman said that if any country were to impose a price cap on Saudi oil exports the same way it did to Russia, the country would He said he would no longer trade with Saudi Arabia. The following day, Algeria’s energy minister also repeated the statement, fearing a dangerous precedent.
Maria Demerzis, professor of economic policy at the Institute of European Universities in Florence, Italy, and senior fellow at the economic think tank Bruegel, said this is why the move away from the U.S. dollar is likely to continue as long as sanctions persist. claimed. .
But it won’t happen overnight. Even if some countries want to avoid the US dollar as a currency, it will be more difficult to replace the payment infrastructure provided by a dollar-led system, Demerzis said.
Banking as a Weapon
“For example, if you’re Indian and you want to sell something to Chile, you’re probably going to sell in dollars. But not just because it’s easier to price your goods in dollars. So are you. ‘Because we’re using the U.S. dollar infrastructure to settle transactions,’ Demerzis said, describing settlement as ‘the legal act of removing money from one account and transferring it to another.’ explained.
That requires a reliable infrastructure, which the United States has provided for decades, he said. The alternative would have “tremendous legal and governance implications,” Demerzis explained. “Does Chile, for example, recognize India’s legal framework? It’s a long road just to reach a place where the two central banks can reconcile bilaterally.”
America and Europe Frozen Central Bank Reserves of Russia Assets held in national jurisdictions may also be weaponizing central banks and damaging the international financial system, Demerzis said.
In the Middle East, it has led to “genuine concerns about the unprecedented weaponization of international trade and finance by the United States and even the EU against the backdrop of their war with Russia,” Al-Hasan concluded. This is why Middle Eastern nations “are gearing up for a more multipolar world that hopes to be best positioned to act in and out of the dollarized zone.”
Editor: Tim Rooks
