Sorry about the delay since my last post. Its been a busy new year. This is a pretty important piece of news that has not gotten much play in the media but it has major implications. In December, the Gulf Monetary Union Pact (GMUP) took effect. This looks to be the first step on creating a single trading currency for crude oil coming out of the Middle East. The dollar has been to sole currency almost all commodities have been traded in and this is a reason we have been able to run huge budget deficits compared to the rest of the world.
When you have to trade your currency in for U.S. dollars to transact an oil purchase, it creates demand for dollar no matter what. If now you have a competing currency that 40% of the world’s oil can be traded in directly then you are opening a situation where the dollar is not in as much demand and that would mean with all these extra dollars being printed with our excessive federal spending, the value of the dollar with fall dramatically.
A Gulf monetary union pact took effect on Tuesday, the Kuwaiti finance minister said in a move that brings the energy rich region closer towards launching its own single currency.
“The Gulf monetary union pact has come into effect,” the finance minister, Mustafa al-Shamali, was quoted as saying by the official KUNA news agency.
“Accordingly, GCC central bank governors will work out a timetable for the establishment of the Gulf central bank to ultimately launch the single currency,” said Shamali.
Under the pact, a Gulf monetary council to be established early next year would develop into a central bank which would then take the required measures to issue a single currency.
Analysis: If this takes place into a single trading currency we will see further declines in the U.S. dollar and either major tax hikes or spending reduction we “have” to happen in the United States.