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Dollar, Gold, Oil and the Venezuela –Iran issue
The US secretary of state Mike Pompeo said the recent sanctions leading to wars against Iran, and an effort to associate terror suspect’s presence in Venezuela can make the governments of these countries invalid. Russia, Venezuela, and China are facing financial penalties over the use of alternative currencies against the dollar, which can influence dollar- dominance over the global marketplace. Venezuela and Iran declined the US-based currency system and these countries kept exploring alternative transaction systems such as exchange in commodities, food, and medicines to gain foreign payments for their supplies.
Petrodollar was designed against the notion of substitute currency where the influential countries like the US were issuing reserve currencies and augmenting dominance in international trade as they could print such reserve currencies instead of exchanging. Earlier, Pound had the world reserve currency status.
The recent sanctions on Iran crashed its currency value. Iran is dependent on the gold reserves for its trade and is trying to export its oil to African countries for the yellow metal. It targets to make similar agreements with Turkey and India. Venezuela wants to gain foreign currency but the US imposed sanctions on its produce.
The rise of the Global Trading Currency
British banks were leading exporter in the 19th century, and they procured a huge amount of gold from their colonies. The Bank of England issued warrants in the form of paper, which could be substituted for the yellow metal, and that made sterling comparable to the metal. The paper sterling was a license, and then 60 percent of the global contracts were designated in sterling. In the 20th century, the British Empire fell and the US gained through the sale of defenses, ammunition, and accessories, where it gained 75 percent of global gold in exchange for ammunition and food.
A dollar was awarded a set exchange rate of 35 dollars per ounce of the metal, which was determined by the European capitalist leaders. The IMF was set up to guarantee the US maintained the exchange rate, where it gave money to the countries having undervalued currencies. The dollar was, essentially, the printing claim that the US held, but in reality, it did not possess any value, and countries suspected the presumption of 35 dollars an ounce of the metal is inequitable. French President Charles De Gaulle showed concerns over this theory and the convertibility theory became obsolete in the 1970s. The US continued to exchange dollar for the metal until 1971, but the fading reserves and mounting deficit led it to free convertibility at fixed exchange rates for the international payments.
There was a need to tie the dollar to a commodity to keep it afloat. Oil was the commodity which helped the US currency to stay at specified rate. Crude being the most traded community could equip it, to retain its value in the global markets. Oil cannot be traded in other currencies but recently, some nations opted out and traded in Euros.
To find out more about currency investment, check 99 Alternatives at (http://www.99alternatives.com).
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