On Tuesday, Robert Fisk of Britain’s Independent reported that Gulf Arab states, China, Russia, Japan, and France have been holding secret meetings to end the pricing of oil in dollars. Instead of the greenback, the group has decided to use a basket of currencies for this purpose. Included in the basket will be gold, yen, renminbi, euros, and a new unified currency for the states of the Gulf Cooperation Council. The deadline for the move away from the dollar is 2018.
Does such a cabal exist? Fisk’s article states the facts were “confirmed to the Independent by both Gulf Arab and Chinese banking sources in Hong Kong.” Apparently, no official of any government talked to the reporter about the conspiracy and none of his sources went on the record. Fisk’s story predicts that participants in the arrangement would issues denials, and the denials from Gulf oil officials in fact came swiftly. “We have never heard of this or discussed this, not even secretly,” stated Abdullah bin Hamad Al Attiyah, Qatar’s oil minister. Said Sheik Ahmed Al Abdullah Al Sabah, Kuwait’s oil minister, “I didn’t even dream about it.”
Normally, smoke does not appear without fire, but the article alleging a currency conspiracy had a fantastical quality about it. For one thing, the renminbi is not convertible and, at the moment, is tightly pegged to the dollar. Although the Chinese say they will loosen their currency practices, Beijing’s most recent move, evident since the middle of last year, has been to back away from reform, making the renminbi unsuitable for the basket. Moreover, the inclusion of a currency that does not exist yet stretches credulity, and it would be a minor miracle if Fisk’s list of countries, which includes both oil producers and consumers, could agree on the basket’s composition. The Gulf states rely on America for their security, so it is unlikely they would try to undermine the greenback while Iran is threatening them with its nuclear program. In any event, the price of oil moves up whenever the dollar declines, so producers are insulated from dollar weakness. Finally, as the astute Tom Holland of the South China Morning Post points out, New York and London oil futures, used as a benchmark, will still be denominated in dollars.