Iran and Japan have taken another step in making the dollar's dominance a thing of the past.
Japanese oil refiners Cosmo Oil Co. and Japan Energy Corp. have started paying for Iranian crude oil in yen instead of dollars, announced company spokesmen on October 9. Both companies are following in the footsteps of Nippon Oil Corp.-Japan's largest oil refiner-which made the same announcement in September.
How significant is it that more and more nations are ceasing to use the dollar as a reserve currency?
Since the 1944 Bretton Woods Agreement, the US dollar has been the world's primary reserve currency. This has been especially true regarding the crude oil trade, in which the majority of nations pay for crude oil in dollars. The resulting massive demand for dollars has allowed the United States to accumulate trade deficits and fiscal debts without experiencing the negative economic impacts that such imbalances normally cause.
This past July, the National Iranian Oil Company (NIOC) general manager of crude oil marketing and exports, Ali Arshi, sent a letter to Japanese oil refineries requesting that all future crude oil shipments be paid for in yen. Three major Japanese oil refiners have already complied. Will other Asian oil refiners follow suit and move away from the US dollar?
As the largest overseas holder of US treasuries, Japan is a key supporter of the US dollar. Yet Iran is the third-largest supplier of Japanese oil. As one Tokyo investment securities analyst said, "What else can Japan do but accept the [Iranian] request, once the oil producer sent its wish?"
The switch to yen should have little negative impact on the Japanese economy. As the purchasing power of the dollar has decreased, the price of oil has skyrocketed to $80 a barrel. Any increase in value of the yen, due to increased oil-yen demand, will only make oil imports less expensive for a nation that is highly dependent on oil imports.
The Iranians are also optimistic about the switch. Hojjatollah Ghanimifard, the International Affairs Director of NIOC, stated that "With the arrangements we've made with our Asian customers, hopefully by the end of October we will have around 80 percent of our export revenues in currencies other than the dollar."
Already, approximately 65 percent of Iran's crude oil exports are based on the euro and another 20 percent on the yen. Iran is casting off the dollar and doing all it can to persuade the oil refineries of Japan to do the same.
Central banks in South Korea, China, Taiwan, Russia, Syria and Italy have announced plans to reduce their dollar holdings. As nations and corporations turn their back on the greenback, the decreasing demand for America's currency may cause its already weakening value to plunge to new depths.
Source: Fars News Agency