Sunday, May 20, 2018

Repercussions from the Iran Deal could see the dollar rejected as a trade currency, but kept by central banks as a monetary reserve

Despite the fact that the many nations are quickly tiring of dollar hegemony, and especially in Washington's use of the reserve currency to impose their will over the rest of the world, the dollar remains the standard by which country's set their own course for monetary policy.

However following President Trump's decision to tear up the Iran Deal, what began originally as an Eastern based policy in 2013 (Russia and China) to dump the dollar has suddenly shifted over to Europe.  And what could potentially emerge is a new paradigm where nations reject the dollar for use in trade settlement, while at the same time holding dollars as a monetary reserve to support their currencies.

The European Union is considering switching payments from the US dollar to the euro after Washington threatened to target European firms working in Iran, according to reports. 
The measure may help the EU to retain one of the world's largest markets, which was opened for trade after the historic nuclear deal signed by Tehran and the P5+1 powers (China, France, Russia, UK, US, plus Germany) in June 2015. 
The idea to eliminate the role of the greenback in international settlements is not new. Aside from the EU, a number of nations have been mulling the idea. RT discussed with analysts how realistic the prospect of countries ditching the dollar is. 
At the same time, analysts admit that getting rid of the greenback is not an easy task. It took the US dollar nearly a century to unsettle the British pound that had been enjoying its preeminence through the 19th century and the first half of the 20th as the global reserve currency. 
"Old habits are hard to break as most of the global hedging is still done on US exchanges like Nymex or ICE," Innes said. "The issues are working out the deliverable to hedge ratio factors which could put many off from breaking long-held settlement in US dollar.""The US dollar is still, for many reasons, the international trade and reserve currency of choice," according to Kateb. "The whole international financial system is currently structured around the United States and around the central role of the dollar."Russia Today
Yet even holding dollars as a monetary reserve to protect one's own currency could be short lived as the rise of sovereign cryptocurrencies, coupled with talk of a return to some form of a gold standard in bi-lateral trade, may one day even make holding dollars simply obsolete. 


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