Reserve Currency Supremacy: Why Euro Lost to Dollar

by Odilim Enwegbara

Charles de Gaulle started it. On February 4, 1965 in a press conference, he publicly questioned dollar’s supremacy as oil denominated currency. Going further, he proposed an immediate return to the principles of the gold standard. Questioning dollar’s ”unearned privileges,” General de Gaulle didn’t realize he was crossing the line. By attacking the dollar imperium, he became the CIA’s enemy number one.

Not even failing severally to assassinate him stopped the CIA. Disgracing him out of office seemed the best way to teach de Gaulle the greatest lesson of his life. Stage-managing ”swarming adolescents” youth unrests in entire France, he was forced to resign as the President of France in 1969. His exit paved the way for the installation of George Pompidou — a leading American puppet — as new the French President.

Besides publicly denouncing de Gaulle’s ”misuse of words,” in June 1970 Mr. Pompidou, in a secret meeting in Monte Carlo, reiterated France’s acceptance of junior partner role in the Anglo-American petrodollar imperium. By bringing to an end France’s antagonism of the dollar, besides being paid back with a leadership role in the newly formed G-7 (an organization of the seven biggest Western economies), to fully appease France, the Paris Club was created.

But did the big meat stop France and Germany from pursuing their daydream of having a petroeuro that should replace petrodollar? They only waited as patiently as it could take to have the Cold War over. The shelved de Gaulle Doctrine was quickly brought out as soon as the Berlin Wall crumbed in November 1989.

The fear that the collapse of the Soviet Union could make these two powerful European countries oppose the US was why while the end of the Cold War brought jubilation around the world, it was panic it brought to the White House. Little wonder President George Walker Bush upon hearing the news quickly met with America’s top economic, military and national security experts. Not only how to justify the huge arms spending and massive intelligence apparatus in the absence of the Soviet caused the panic. The fate of the dollar as the world’s reserve currency without the Cold War as well as how to retain France and Germany as America’s vassal states caused panic at the White House.

No sooner was the Berlin Wall down did the announcement come that a stronger European economic and monetary union had become inevitable. And on December 8, 1991 the announcement of the deadline for European Monetary Union, which even came before the cessation of the Soviet Union itself, was another shocker. While celebration in French and German cities signaled liberation from America, it was the 1997 rolled out plans of how the euro currency would soon replace the dollar that truly brought uncontrollable jubilations across Europe.

Speculative economists around the world, doing what they do best, agreed with one another. Who would have disagreed with stellar economists and political scientists like Martin Feldstein, former head of the US Presidential Council on Economic Advisors, for arguing that “The monetary integration of Europe could alter the political character of Europe in the ways that could lead to confrontation with the United States…and could lead to a world that would be very different and not necessarily a safer place”? Or a prominent Canadian economist Michel Chossudovsky who argued, “The European common currency system has a direct bearing on strategic and political divisions….What is at stake is the rivalry between two competing global currencies: the euro and the dollar…two rival financial and monetary systems are competing worldwide for the control over money and credit, an imperial scramble for control over national economies and currency systems”?

In the meantime, Jack Chirac was sending endless threats to America. First, he made it clear that the three decades-long truce between his France and the Anglo-American alliance was now over. Second, out of sheer thoughtlessness he announced that soon France would revenge the humiliation of Charles de Gaulle. But who wouldn’t believe him given the kind of indivisible marriage he had with his German counterpart, Chancellor Gerhard Schröde? Believing in Europe’s super currency power, Chirac had this to say, “It’s now time for the euro, not the dollar, became the world’s reserve currency.”

And believing that my enemy’s enemy is my friend, on Radio Free Europe on November 1, 2000, Saddam Hussein in support of Chirac’s announcement said that his country was now ready to migrate to petroeuro. And believing that petrodollar’s days were numbered, nations in desperation not to lose their dollar-denominated foreign reserves, began planning how to get out of the dollar before it could be too late. Little wonder, by 2002 major holders of dollar reserves such as China, Japan, Russia, and South Korea had asked their central banks to begin switching from dollar to euro currency.

But what would have resulted in an unprecedented dollar exodus was averted thanks to the quick announcement by the very backbones of the petrodollar — Saudi Arabia, UAE, Kuwait. They made it clear that the rumored shift from petrodollar to petroeuro should never happen.

But could such rushed euro have defeated the omnipotent dollar in the reserve currency supremacy battle? France and Germany not only failed to remind themselves that the US-Saudi Arabia treaty in 1945 (a kind of indivisible marriage where as the world’s number one military power the US should always defend and protect Saudi Arabia, while Saudi’s vast oil reserves should be the backbone of petrodollars, in infinitum) could hardly be broken. Also that there was no way OPEC cartel, the baby Riyadh and Washington gave birth to in September 1960 as a powerful neutralizer of any eventual Soviet oil geostrategic weapon, could overnight be used against the dollar.

To show that that would never happen by making such Iraq’s 100 billion barrels of oil reserves (second only to Saud’s 250 billion barrels) was brought under America’s control, not only was Iraq invaded with every awe it could send out to any nations contemplating such a thought, but in the battle of two powerful elephants, Saddam who made his country a pawn also paid the ultimate price in this high-stake geostrategic game of chess. In fact, the ferocious destruction of Iraq became a warning to any other OPEC member country wanting to make the same mistake Saddam made.

Even as big a fish Chirac was as French President, he too did not escape being seriously brutalized by the Americans. Bleeding helplessly like De Gaulle, Chirac hasn’t had it this rough since retiring from active politics. As a master-blackmailer, the CIA fully aware where all Chirac’s outrageous skeletons were hidden, they have been publicly excavating these skeletons in his cupboards in humiliating ways, including corruption as far back as 30 years ago when he was Mayor of Paris.

But even at that, there was no way the defectively articulated euro currency could have successfully displaced the almighty dollar. The fact that 17 European countries hurriedly accepted to come under a single monetary policy but without equally subjecting themselves to a common fiscal policy was enough evidence that the euro was to fail. So, locked into a euro without each member allowed to either inflate its way out of large public debts or devalue its currency in a way that could make imports more expensive and exports more competitive made euro no match to the dollar. That’s why going on a borrowing spree, most of the euro economies became fiscally delinquent.

With weakening eurozone economies and the high public spending, came unprecedented rise in public debts. These all added together, resulted in debt rescheduling, which in return shot up the Eurobond interest rates. With high cost of borrowing also came the deepening of the recession. Every effort to ease the debt crisis has always faced enormous difficulty, especiall

y because financial assistance packages given to members in crisis came not only with draconian demand to cut government spending but also with the condition that the receiving governments should raise taxes to improve fiscal positions. Unable to control the debt crisis, the risk has since spread to the European banking system.

Since inflation is a hidden confiscation of citizens’ wealth, inflated by 2,225 per cent since its floating in 1971, not only has America continued taxing the world using the reserve currency power of the dollar but also has in its stockpile some inestimable amount of gold and other precious metals. In other words, with the de fact power of the dollar America has since 1945 extracted more than $600 trillion in raw wealth from the rest of the world. Not taking these realities into consideration by those championing the euro’s replacement of the dollar was what caused the euro’s collapse even before the battle with the dollar could begin.

Coming to their senses, they then understood that the difference between their bloated public spending and America’s huge public debts is that with dollar as reserve currency, Washington has no difficulty externalizing its deficit spending to the world, devaluing the dollar by printing dollars at will as well as by artificially driving high oil prices so that nations around the world have to scramble for dollars to meet the high oil prices. Not only did Brussels lack this power to externalize its domestic excesses. Without euro being a reserve currency, it too has to scramble for dollars to meet its oil imports from outside eurozone oil producers.

Being a carefully orchestrated dollar coup against euro, it is understandable why rather than Europeans celebrating it’s now Americans who are celebrating the euro crisis. Not by ordinary Americans and British, but by respected Washington insiders like the former Federal Reserve Chairman, Alan Greenspan, who took joy in calling the euro ”the wildest dream.”

Next week, I will discuss the emerging true battle, the impending challenge of petrodollar by the Chinese yuan. With Washington ready to project its full military supremacy, Beijing seemed not to be intimidated given its vast economic and financial power which comes with over 3.6 trillion foreign reserves. As dreadful as it sounds, it’s this inevitable warfare will decide which currency rules the 21st-century as the world’s de facto reserve currency supremacy.

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