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Iran Shifts Currency Reserves

from the December 19, 2006 eNews issue
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A spokesman for the Iranian government announced on Monday that Iran will shift its foreign currency reserves from dollars to euros. Iran is also expected to conduct its oil sales in Euros. Iran is the fourth-largest oil producing country in the world, and the second largest in OPEC. The Islamic nation controls about 5 percent of the global oil supply and therefore has a measure of influence over international oil markets.

At present, approximately two thirds of world trade is conducted in dollars and two thirds of central banks' currency reserves are held in the American currency which remains the sole currency used by international institutions such as the International Monetary Fund. This confers on the US a major economic advantage: the ability to run a trade deficit year after year. US always spends more than it earns, whereas the rest of the world always earns more than it spends.

If more banks move away from the dollar it could cripple the US economy. Yet a rapid and wholesale move to the euro is unlikely. A sudden shift could cause the US dollar to crash, which would have a disastrous effect on the world economy.

The strength of the dollar is closely related to the fact that oil, the most important commodity traded in the world, is priced in US currency. The majority of countries that are oil importers have to buy their oil in dollars, which forces them to keep most of their foreign currency in dollars. However that could change.

Besides Iran, several other countries, such as China, Switzerland, and Russia, have announced plans to move their reserves away from the dollar. When China revealed its plans, the announcement caused the value of the dollar to fall to a two month low. Experts estimate that over 70 percent of China's record-breaking currency reserves are US dollars. In November the Chinese Central Bank announced plans to diversify their currency reserves.

Last month China's foreign currency reserves passed the 1 trillion dollar mark - setting a new record for the world's largest currency reserves and sparking a debate over China's economic policies. China's currency reserves have been growing at a rate of nearly 30 million dollars per hour - fueled primarily by its large trade surplus, which tripled last year to 102 billion dollars. China's red hot economy has been growing even faster than analysts predicted. The Chinese economy is now expected to grow by more than 10 percent this year.

Money is one of the most important inventions of humankind. Without it, a complex, modern economy based on division of labor, and the consequent widespread exchange of goods and services, would be impossible. Over the last year the value of the US dollar has dropped significantly and inflation has continued to rise. Increased inflation and the decline of the dollar have various Biblical implications. It could open the door for a common world currency. It is also consistent with the Bible's description of the end times. The black horseman of Revelation 6 calls our attention to, not just famine at the onset of the Tribulation, but also to an economic condition where a man's daily wages are so small, he can barely support himself much less his family. What kind of condition would produce that? The answer is one which has emerged today and which, for the first time in the history of mankind, is for all intents and purposes universal: monetary inflation. For more information on inflation, the history of our monetary system and financial institutions, and what the Bible has to say about it see our topical study Behold a Black Horse.

Related Links:

  •   Dollar Dropped in Iran Asset Move - BBC
  •   China's Fiscal Revenue Expected to Set New High - China Daily
  •   China's Foreign Reserves Spur Market Speculation, Policy Debate - IHT
  •   Behold A Black Horse - MP3 Download - Koinonia House