Four months ago, I ditched the US dollar for the Euro. Overnight I changed the currency of all the products at SYCODE from USD to EUR. Just like that! I didn’t change the numbers. What was 195 USD became 195 EUR, basically an overnight price increase of 44%. Yes, I know it sounds like a crazy thing to do. But I was fed up with the consistent weakening of the US dollar against the Indian Rupee. So fed up that making the switch didn’t sound crazy enough to stop me from doing it at that time.
Now OPEC (Organization of Petroleum Exporting Countries) seems to be fed up as well. They are contemplating pricing their oil in Euros instead of US dollars. Several OPEC members are selling oil in dollars but buying commodities in non-dollar currencies. And with the US dollar dropping 44% against the Euro since 2000, it’s quite easy to understand why they are so pissed off.
Iran is already pricing most of its oil in Euros and Venezuela appears to be going down that road as well. Saudi Arabia’s foreign minister has warned that if OPEC abandons the dollar that would sink it even further.
To make matters worse, analysts are of the opinion that the US Fed’s actions of cutting interest rates is going to help only in the short term. This was done mainly to stop stock prices of US financial institutions from collapsing. Sounds like a good thing to do. But in the long term, this may lead to the US dollar plunging even further.
According to one analyst, “When you lower interest rates in your country, you are effectively devaluing your currency. The US bond market is currently pricing another 100 basis point drop in interest rates. This will come within the next six weeks. When the Fed announces the same, the US dollar will drop in value and gold, priced in US dollars, will go up. This will lead to a vicious circle. Quite simply, no one can build a strong economy on a weak currency. If this were possible, Tanzania would have one of the strongest economies in the world.”
Is this the beginning of the end of the US dollar as the dominant currency?