Editor's Corner
THE US DOLLAR vs THE EURO
The dollar has depreciated significantly during the past five years against all major currencies of the world, especially against the Euro. Today, it takes $1.2680, almost $1.27 to buy one Euro. Prior to 2000 it used to be the reverse. It took 1.20 Euro to buy one dollar. Our escalating budget deficit since 2001 and the record trade deficit are the main causes for this erosion. None of this erosion is addressed by the administration. And Americans who do not travel abroad have little or no experience of our dollar's gradual depreciation.
Well, last week, Alexei Kudkin, the Russian Finance Minister dropped a bombshell in Washington during the annual meetings of the World Bank and International Monetary Fund by openly questioning the dollar's pre-eminence as the world's "absolute" reserve currency. He stated that the ever increasing US trade deficit and the consistent erosion of the dollar are creating concern and the international community can hardly be satisfied with this instability. He went on to question why the oil is quoted in dollars and cents, when it can be quoted in a more stable currency like the Euro.
This challenge to the dollar's supremacy created a great deal of discomfort among the American delegates attending these meetings. It is true that most nations stockpile their foreign exchange holdings in dollars. In fact, the US currency used to account for more than two thirds of all central bank reserves worldwide. However, recently, central banks started diversiying their reserves away from dollars. Example: Sweden has cut its dollar holdings from 37% to 20%, while rising their Euro share to 50%. Some Gulf states have recently practiced the same shift into the Euro.These recent financial events have pushed the dollar to an all-time low rate.
The high oil prices and as a consequence the high gasoline prices are not helping the situation. We will be spending more money paying for the higher oil prices, thus increasing our trade deficit and penalizing the American consumer who finds himself helpless but paying the high gas prices. This morning, I filled up the tank of my car. For the first time, I paid in excess of $50.00. Never happened to me in all my driving years.
Mind you, I paid $2.95 per gallon in Atlanta, Georgia. Not $3.50 or $4.00 per gallon as it happens to be the case in some other states. And the President is doing nothing to rectify this thievery. Exxon-Mobil declared $34.1 billion profits in 2005. And they just declared their profits during the first quarter of 2006. $8.4 billion.
Exxon-Mobil's CEO has a compensation package amounting to $400 million. If these figures are not abusive, insulting, and intolerable, I am at a loss for the proper wording. Of course, President Bush is a former oil man himself, and Vice President Cheney came from Haliburton. What can we expect from either one of them?
It is worth noting that Iran has ongoing plans to set up an oil trading exchange to compete with New York's NYMEX and with London's International Petroleum Exchange. In the ligh of Kudrin's comments, it is significant that the Iranians want to run their oil exchange in Euros, not dollars. When this Iranian oil exchange goes into effect, it will certainly threaten the dolla's dominance as the unique petrocurrency. And given America's twin deficits, it could seriously hurt the US economy.
President Bush needs to do everything in his power to stop any further deterioration of the dollar. Otherwise, we may be facing a currency collapse, plunging the world's largest economy into recession.
James C. Stathis
Associate Editor
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