Sunday, December 9, 2007

Iran does not want to be paid in dollars

It was reported that Iran the fourth largest oil exporter will have all payments made in currencies other than the dollar. Obviously, there is a strong political component to this announcement. The embargo on Iran by the US and the pressure the US has placed on global banks not to deal with Iran has affected their ability to use the dollar acquired from being paid for their oil, but this is just another red flag concerning the decline of the dollar.

If the dollar continues its long-term slide, Iran will look at lot smarter than many of the other Arab countries that have continued to be paid in dollars. There has already been strong talk about diversifying reserves by Arab central banks and the cost of being pegged to the dollar has led to higher inflation.

The declining dollar will continue to have a strain on those countries who have pegged to the dollar. A change in this behavior will have a strong demand impact on dollars and with further deteriorate the financial position of the US. There will be political fall-out from this change in reserve behavior.

No comments: