Saturday, April 05, 2008

How Much Longer Will Saudi Arabia Support the US$?

Cheney’s visit to the Persian Gulf monarchs also included a personal plea to avoid pulling the plug on the US dollar’s artificial life support. If the Arab oil kingdoms decide to ditch their dollar pegs to control inflation and diversify their overseas assets to earn higher returns in other currencies or in gold and commodities, the net result could be the loss of the US dollar’s reserve currency status.

The vice president’s itinerary for his nine-day tour, Oman, Saudi Arabia, Israel and Turkey, was also designed for saber rattling with Tehran. Cheney’s hawkish threats over Iran’s nuclear weapons program keeps the Arab oil kingdoms wedded to the dollar, since the US military is the guarantor of the Arabian Gulf’s security. But the cost of sticking with the archaic dollar peg is intolerably high, and threatening social unrest in the kingdoms.