Easy Money: The Greatest Ponzi Scheme Ever and How It Threatens to Destroy the Global Financial System by Kaul Vivek

Author:Kaul, Vivek [Kaul, Vivek]
Language: eng
Format: epub
Tags: null
Publisher: HarperCollins Publishers India
Published: 2018-05-04T21:00:00+00:00

8

The More Things Change, the More They Remain the Same

Despite all that is wrong with the financial condition of the United States, the dollar remains the world’s premier currency. Oil and many other commodities continue to be sold in dollar terms and investors look at it as a safe haven. That’s why countries require dollars to buy these commodities.

As we saw in the second volume in the Easy Money series, attempts were made in late 1970s by the Organization of Petroleum Exporting Countries (OPEC) to start pricing oil in a basket of currencies, but that did not happen. If that had happened, the importance of the dollar as a reserve currency would have come down over the last three decades. Given that, a crisis of the kind that occurred starting in late 2008 would never have happened. With oil not being priced in dollars but in a basket of currencies, countries around the world would have needed to maintain a significant proportion of their international reserves in non-dollar currencies.

If the dollar had not been at the heart of the financial system, the US government and its citizens would not have been able to borrow money at low interest rates, as they were and are still able to do. Easy money would not have been the order of the day, and possibly there would have been no bubbles of the kind that we ended up with. Or they would not have been as big as they finally became.

But all this wisdom comes with the benefit of hindsight. Truth is that money and the financial system have evolved in a way that placed the US dollar at the heart of the global financial system. For the dollar to continue to be an international reserve currency, it is very important that oil continues to be sold in dollar terms.

Saudi Arabia remains a close ally of the United States, even though Osama bin Laden was a Saudi by birth. The Arab Spring, which saw several countries in the Middle East throwing out their dictators and adopting democracy, did not have much of an impact on Saudi Arabia. But the danger remains. The majority of the Saudi population is Sunni; Shias form only around 10–15 per cent. But most of the biggest oil fields in the country are in areas where Shias have a significant presence.

During the Arab Spring, there were protests in Bahrain, where Shias are the majority community, but the island state is ruled by Sunnis. Forces were sent from Saudi Arabia to Bahrain to crush the protests, primarily to ensure that protests by Shias in Bahrain do not spill over to Shias in Saudi Arabia.

For OPEC to continue pricing oil in dollars, Saudi Arabia, which produces the most oil and has the most reserves within OPEC, should want to continue pricing oil in dollars. This will continue to happen while the Al Sa’uds continue to rule Saudi Arabia. And for that, they need to ensure that the country does not go through any revolution like some of its neighbours have in recent past.

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