How OPEC Can Almost Instantly Collapse Our Economy
The Guardian February 26, 2003
"The [US] Federal Reserve's greatest nightmare is that OPEC will switch its international transactions from a dollar standard to a euro standard. Iraq actually made this switch in Nov. 2000 (when the euro was worth around 80 cents), and has actually made off like a bandit considering the dollar's steady depreciation against the euro ..."
The steady depreciation of the dollar versus the euro since late 2001 means that Iraq has profited handsomely from the switch in their reserve and transaction currencies.
The euro has gained roughly 17 per cent against the dollar in that time, which also applies to the $10 billion in Iraq's UN "oil for food" reserve fund that was previously held in dollars has also gained that same percent value since the switch.
What would happen if OPEC made a sudden switch to euros, as opposed to a gradual transition?
"the effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their (central bank) reserve funds and replace these with euros.
"The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example).
"You'd have foreign funds stream out of the US stock markets and dollar denominated assets, there'd surely be a run on the banks much like the 1930s, the current account deficit would become unserviceable, the budget deficit would go into default, and so on. Your basic third world economic crisis scenario." (Radio Free Europe/RL correspondent Charles Recknagel)