Today Americans spend 700 billion dollar a year more than they produce, so they have to borrow that 700 billion. This means that in average each US citizen enjoys $3,000 more imported products than he/ she earns. They get this large amount of money from the Central Banks of China, Japan and European countries, because they keep dollar reserves. China is currently the largest holder of US currency reserves with $853.7 billion, and Japan is the second largest with over $850 billion in dollar assets. So the rest of the world are sellers - China, Japan, India, and the EU. The rest of the world invests, produces, exports to the US, and they lend more and more to the US. The increasing fragility of the US economy is underlined by the 2005 report from the IMF. This report pointed out that the US economy is increasingly being supported by what the IMF report called 'unprecedented borrowing' from foreigners. The report went on to saying that the US deficit is unsustainable in long-term. David M. Walker, Comptroller General of the US, warned of the US's deteriorating financial situation, on 14 March 2006, saying that 'too many Americans - from individual consumers to elected officials - are spending today as if there is no tomorrow. Many Americans, like their government, are living beyond their means and are deeply in debt.' What does all of this have to do with Iraq and Iran ?
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The 2003 Invasion of Iraq
The interplay between the reserve currency role of the dollar and link with the oil producing countries can be observed in the recent conflict in Iraq. On 6 November 2000, while Americans were distracted by the controversial Florida presidential vote count, the Iraqi government announced that it was no longer going to accept dollars for oil sold under the UN's Oil For-Food Program and decided to switch to the euro as Iraq's oil export currency - hence launching the so-called 'secret weapon' of Iraq. This was the first time an OPEC country dared violate the dollar-price rule. And since then, the value of the euro has increased and the value of the dollar has steadily declined. Libya has been urging for some time that oil be priced in euros rather than dollars. In 2001, Venezuela's ambassador to Russia spoke of Venezuela switching to the euro for all their oil sales. Iran , Russia , and other countries also indicated that they would like to denominate their petroleum in euros. Since the oil trade is a central factor underpinning the dollar's hegemony, all these are potentially very significant threats to the strength of the US economy, and US global hegemony.
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