Refusal of the Dollar by Oil-Producing Countries Could Exert Pressure on American Currency – Professor in Temple University

Azerbaijan, Baku, 6 May / Trend corr. A.Badalova / The American dollar could face pressure should oil-producing countries refuse the sale of oil in dollars, Jay Choi, Professor of US Finance and International Business in Temple University, believes.

Iran has already made the decision to completely discontinue oil transactions in dollars. Iran is the second oil-producing OPEC member-country after Saudi Arabia. The Iranian Petroleum Ministry representative stated that transactions with buyers will be implemented in other non-dollar currencies. Earlier, the Iranian Government, called upon OPEC countries to stop dealing in dollars.

" Iran's decision alone will not affect the value of the dollar very much. Iran does not have much trade relations with the US now. If other major oil exporters follow suit, then pressure on the dollar would be more significant," Choi stated to Trend on 6 May.

However, analysts hesitate that other countries will follow Iran's example. According to Andrew Reed, expert of the American analytical company Energy Security Analysis (ESAI), only a few countries will agree to use 'other currencies'.

"Traders will unlikely take such a step which could lead to a currency risk of their operations," Reed stated.

"In the short term, it makes no difference to the world if Iran prices its oil in euros or any other currency. International financial markets are such that any transaction designated in one currency can be swapped into another currency of the buyer's choice at a small cost. Even if oil is designated in dollars, buyers can swap the oil transaction into any other major currency at a small cost," Swaminathan Aiyar, expert on India and Asia countries in SATO University, stated.

Where government companies are huge exporters, as in OPEC countries, they may prefer dollar transactions because they hold the bulk of their foreign exchange reserves in dollars. 

The notion that Iran or other OPEC countries could deal a huge blow to the US economy by designating oil in dollars is silly. Remember, the Soviet Union and other countries of the Communist bloc once designated their trade and payments, with themselves and with countries like India, in roubles, and it made no difference at all to the US or the strength of the dollar.

The strength of the dollar emanates from the strength of its economy, not because oil is designated in dollars. Indeed, at no point did the US ever try to force or persuade people to price oil in dollars.

However, if all countries begin switching their foreign exchange reserves from dollars to other currencies, the US dollar will fall further.

The correspondent can be contacted at: [email protected]

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