Tumultuous times for the dollar this week. Gold has hit an all-time high three days in a row (this morning it’s at $1,045 troy ounce – it was only $990 on 29 September) while WTI oil is up at $71.50 a barrel todaycompared to $66 just over a week ago – both commodities head upwards when the greenback’s going the other way. So what was going on? Over to the NYT for the stocks and bonds report in Wednesday’s paper:
Investors clamored to buy pretty much anything on Tuesday — as long as it was not the dollar. A seven-month slide in the value of the dollar gained force as investors migrated to other markets and fretted over a report that crude oil could one day be priced in other currencies, hobbling the dollar’s role as a vehicle for global trade.
Whatever would give investors that idea, you wonder? Answer:
A report on Tuesday in The Independent, a British newspaper, suggested that China, France, Japan and Russia were in secret talks with Persian Gulf countries to abandon the dollar for international trade in oil and replace it with a basket of currencies and gold.
The Independent? Not the FT, not the WSJ, but the Independent? Yup, the FT’s Alphaville blog says so too:
The Independent appears to have rocked the world on Tuesday with its Robert Fisk exclusive exposing a secret plot by international central banks to topple the US dollar.
So what on earth did he say that managed to move markets on the other side of the Atlantic?
Here’s the full article. The key assertion:
Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead 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. Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
All this apparently to take place by 2018. Fisk also notes that his sources suggest none of this will be very pleasant for the UK. He writes:
The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. “The Russians will eventually bring in the rouble to the basket of currencies,” a prominent Hong Kong broker told The Independent. “The Brits are stuck in the middle and will come into the euro. They have no choice because they won’t be able to use the US dollar.”
“These plans will change the face of international financial transactions,” one Chinese banker said. “America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate.”
Which is exactly what then happened, once the article had been published. Japan’s finance minister emphatically denies the charge in this AlJazeera clip ; and Alphaville stresses that “denials have been coming out thick and fast from all the central banks involved”. Still, interesting to note the similarities between the project Fisk claims to have uncovered and what JM Keynes was proposing at Bretton Woods in 1944…