The Bottom Dollar

The problem with American power is not that it's American. Most states with the resources and opportunitiesthe US possesses would have done far worse. The problem is that one nation, effectively unchecked by anyother, can, if it chooses, now determine how the rest of the world shall live. Eventually, unless we stop it,it will use this power. So far, it has merely tested its new muscles.

The presidential elections next year might prevent an immediate entanglement with another nation, but thereis little doubt about the scope of the US government's ambitions. Already, it has begun to execute a slow butcomprehensive coup against the international order, destroying or undermining the institutions which mighthave sought to restrain it. On these pages two weeks ago, James Woolsey, an influential hawk and formerly thedirector of the CIA, argued for a war lasting for decades, "to extend democracy" to the entire Araband Muslim world.[1]

Men who think like him - and there are plenty in Washington - are not monsters. They are simply respondingto the opportunities which power presents, just as British politicians once responded to the vulnerability ofnon-European states and the weakness of their colonial competitors. America's threat to the peace andstability of the rest of the world is likely to persist, whether George Bush wins the next election or not.The critical question is how we stop it.

Military means, of course, are useless. An economic boycott, of the kind suggested by many of the opponentsof the war with Iraq, can never be more than symbolic: US trade has penetrated the economies of almost allother nations to such an extent that to boycott its goods and services would be to boycott our own. Untilrecently, as Bush's government sought international approval for its illegal war, there appeared to be someopportunities for restraint by diplomatic means. But now it has discovered that the United Nations isunnecessary: most of its electors will approve its acts of aggression with or without a prior diplomaticmandate. Only one means of containing the US remains. It is deadly and, if correctly deployed, insuperable. Itrests within the hands of the people of the United Kingdom.

Were it not for a monumental economic distortion, the US economy would, by now, have all but collapsed. Itis not quite a West African basket case, but the size of the deficits and debts incurred by its profligacywould, by any conventional measure, suggest that it was in serious trouble. It survives only becauseconventional measures do not apply: the rest of the world has granted it an unnatural lease of life.

Almost 70% of the world's currency reserves - the money which nations use to finance international tradeand protect themselves against financial speculators - takes the form of US dollars. The dollar is used forthis purpose because it is relatively stable, it is produced by a nation with a major share of world trade,and certain commodities, in particular oil, are denominated in it, which means that dollars are required tobuy them.

The United States does very well from this arrangement. In order to earn dollars, other nations mustprovide goods and services to the US. When commodities are valued in dollars, the US needs do no more thanprint pieces of green paper to obtain them: it acquires them, in effect, for free. Once earned, other nations'dollar reserves must be invested back into the American economy. This inflow of money helps the US to financeits massive deficit.[2]

The only serious threat to the dollar's international dominance at the moment is the euro. Next year, whenthe European Union acquires ten new members, its gross domestic product will be roughly the same as that ofthe US, and its population 60% bigger. If the euro is adopted by all the members of the union, which suffersfrom none of the major underlying crises afflicting the US economy, it will begin to look like a more stableand more attractive investment than the dollar. Only one further development would then be required to unseatthe dollar as the pre-eminent global currency: nations would need to start trading oil in euros.

Until last week, this was already beginning to happen. In November 2000, Saddam Hussein insisted thatIraq's oil be bought in euros.[3] When the value of the euro rose, the country's revenues increasedaccordingly. As the analyst William Clark has suggested, the economic threat this represented might have beenone of the reasons why the US government was so anxious to evict Saddam.[4] But it may be unable to resist thegreater danger.

Last year, Javad Yarjani, a senior official at OPEC, the oil producers' cartel, put forward severalcompelling reasons why his members might one day start selling their produce in euros.[5] Europe is the MiddleEast's biggest trading partner; it imports more oil and petrol products than the US; it has a bigger share ofglobal trade; and its external accounts are better balanced. One key tipping point, he suggested, could be theadoption of the euro by Europe's two principal oil producers: Norway and the United Kingdom, whose Brent crudeis one of the "markers" for international oil prices. "This might", Yarjani said,"create a momentum to shift the oil pricing system to euros." [6]

If this happens, then oil importing nations will no longer need dollar reserves in order to buy oil. Thedemand for the dollar will fall, and its value is likely to decline. As the dollar slips, central banks willstart to move their reserves into safer currencies, such as the euro and possibly the yen and the yuan,precipitating further slippage. The US economy, followed rapidly by US power, could then be expected to falteror collapse.

The global justice movement, of which I consider myself a member, has, by and large, opposed accession tothe euro, arguing, correctly, that it accelerates the concentration of economic and political power, reducespeople's ability to influence monetary policy and threatens employment in the poorest nations and regions.[7]Much of the movement will have drawn comfort from the new opinion polls suggesting that almost 70% of Britishvoters now oppose the single currency,[8] and from the hints dropped by the Treasury last week that Britishaccession may now be delayed until 2010.

But it seems to me that the costs of integration are merely a new representation of the paradox ofsovereignty. Small states or unaffiliated tribes have, throughout history, found that the only way to preventthemselves from being overrun by foreign powers was to surrender their autonomy and unite to fight theircommon enemy. To defend our sovereignty - and that of the rest of the world - from the US, we must yield someof our sovereignty to Europe.

That we have a moral duty to contest the developing power of the United States is surely evident. That wecan contest it by no other means is equally obvious. Those of us who are concerned about American power mustabandon our opposition to the euro.

References:

1. James Woolsey, 8 April 2003. Welcome to the Fourth World War. The Guardian.

2. For some interesting discussions of this issue, see Henry K Liu, 11 April 2002. US Dollar hegemony hasgot to go. Asia Times; Henry K.Liu, 23 July 2002. China vs the Almighty Dollar. Asia Times; Romilly Greenhilland Ann Petti for, April 2002. The United States as a HIPC (Highly Indebted Prosperous Country) ? how the poorare financing the rich. Jubilee Research at the New Economics Foundation, London.

3. Eg Faisal Islam 23 February 2003 When will we buy oil in euros? The Observer.

4. WR Clark, 2003 The Real But Unspoken Reasons For TheIraq War: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth.

5. Javad Yarjani, Head of the Petroleum Market Analysis Department, OPEC, 14 April 2002. The Choice ofCurrency for the Denomination of the Oil Bill. Speechgiven at Oviedo in Spain.

6. ibid

7. These arguments are presented in a concise and compelling form in James Robertson, 2002. Forward withthe Euro AND the Pound. Research Study No 17, the Economic Research Council, London.

8. Eg The Economist, April 19th-25th 2003.

George Monbiot is Honorary Professor at theDepartment of Politics in Keele and Visiting Professor at the Department of Environmental Science at theUniversity of East London and the author of CaptiveState: the corporate takeover of Britain, and the investigative travel books Poisoned Arrows,Amazon Watershed and No Man's Land. He writes a weekly column for the Guardian, UK. The Ageof Consent, his proposals for global democratic governance, will be published in June.