"One of the stated economic objectives, and perhaps the primary objective, when setting up the euro was to turn it into a reserve currency to challenge the dollar so that Europe too could get something for nothing.
"This however would be a disaster for the US. Not only would they lose a large part of their annual subsidy of effectively free goods and services, but countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards. As countries and businesses converted their dollar assets into euro assets, the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble, as it is currently openly considering doing, because, without lots of eager foreigners prepared to mop them up, a serious inflation would result which, in turn, would make foreigners even more reluctant to hold the US currency and thus heighten the crisis.

"There is though one major obstacle to this happening: oil. Oil is not just by far the most important commodity traded internationally, it is the lifeblood of all modern industrialised economies. If you don't have oil, you have to buy it. And if you want to buy oil on the international markets, you usually have to have dollars. Until recently all OPEC countries agreed to sell their oil for dollars only. So long as this remained the case, the euro was unlikely to become the major reserve currency: there is not a lot of point in stockpiling euros if every time you need to buy oil you have to change them into dollars. This arrangement also meant that the US effectively part-controlled the entire world oil market: you could only buy oil if you had dollars, and only one country had the right to print dollars -- the US.

"If on the other hand OPEC were to decide to accept euros only for its oil (assuming for a moment it were allowed to make this decision), then American economic dominance would be over. Not only would Europe not need as many dollars anymore, but Japan which imports over 80% of its oil from the Middle East would think it wise to convert a large portion of its dollar assets to euro assets (Japan is the major subsidizer of the US because it holds so many dollar investments). The US on the other hand, being the world's largest oil importer would have, to run a trade surplus to acquire euros. The conversion from trade deficit to trade surplus would have to be achieved at a time when its property and stock market prices were collapsing and its domestic supplies of oil and gas were contracting. It would be a very painful conversion.

"The purely economic arguments for OPEC converting to the euro, at least for a while, seem very strong. The Euro-zone does not run a huge trade deficit nor is it heavily indebted to the rest of the world like the US and interest rates in the Euro-zone are also significantly higher. The Euro-zone has a larger share of world trade than the US and is the Middle East's main trading partner. And nearly everything you can buy for dollars you can also buy for euros -- apart, of course, from oil. . . .

"All of this is bad news for the US economy and the dollar. The fear for Washington will be that not only will the future price of oil not be right, but the currency might not be right either. Which perhaps helps explain why the US is increasingly turning to its second major tool for dominating world affairs: military force." [31]

It appears that Mr. Nunan concurs with my hypothesis with respect to the euro and this upcoming war. Considering the economic challenges that our nation faces, and the deplorable oil currency war that I fear we are about to witness in Iraq, this author advocates that the global monetary system be reformed without delay. This would include the dollar and euro designated as equal international reserve currencies, and placed within an exchange band along with a dual-OPEC oil transaction currency standard. Additionally, the G-8 nations should also explore a third reserve currency option regarding a yen/yuan bloc for East Asia. These reforms may lower our standard of living slightly, but would create a far more equitable global monetary system, and thus hopefully mitigate future armed or economic warfare over the currency of oil.

Tragically, President Bush and his administration do not appear willing to initiate the arduous structural changes that our economy must undertake if we are to adapt and compete with the euro as a second international reserve currency. Instead, they intend to enforce U.S. dollar hegemony for oil transactions via the application of superior U.S. military force. This essay illustrates this dangerous, military-centric strategy could ultimately result in failure, as monetary maneuvers against the U.S. dollar by the international community indicate they will not tolerate aggressive U.S. imperialism over Iraq's oil and its choice of oil currency. We must not allow the militant imperialist overreach of this administration to bring down the American Experiment.

"I have sworn upon the alter of God, eternal hostility against every form of tyranny over the mind of man"

Submitted by, Daniel