The downward drift of the dollar against the stronger currencies, particularly the euro, continues hurting those who receive payments in dollars.
The countries which keep their reserves in the US currency also suffer.. Frantic EU efforts have been made to arrest this downward trend but without notable success as the credit crisis in the US gets worse.
The US is taking no positive step to arrest the downward drift of the dollar which has touched its lowest ebb at $1.448 to a euro The US has aggravated the situation by imposing sanctions on Iran due to the nuclear arms dispute and Iran is not ready to step back.
The president of the International Atomic Energy Commission has stated that Iran in not building nuclear weapons but that is not enough for the Americans who do not rule out war if their leadership consider it necessary. In the process the dollar has come down 2.07 to the British pound.
In the process the world oil price has shot to $96 a barrel and is heading towards the dreaded $100 a barrel.
The prospect of oil at $100 a barrel or near about scares the world, more so the developing countries. Today, among the major importers of oil are Asian countries led by China and India and their economic growth may be affected by the soaring oil price.
A group of countries gravely concerned over the future of the dollar is the Organisation of Petroleum Exporting Countries (Opec) who are getting more dollars from each barrel each day. The process hurts the developing countries and states with less or no oil. The OPEC has been looking for a substitute for the dollar to price oil. And it has decided to opted for a basket of currencies to fix the oil price. How large will be that basket and how often the 13 countries or its nominees will meet to decide the oil price is a matter of concern for all oil consuming countries.
Will the committees set up for the purpose announce the change from day to day or once a week remains to be known. Too much uncertainty in this area can be upsetting for the oil consuming countries. Anyway, the heads of states of the Opec countries are to meet this month and the ministers next month to take the final decision. But with the oil price raising through to $100 a barrel, it is necessary the oil chiefs meet early and announce the formalities for the basket of currencies to be finally settled.
Along with the move to have a basket of currencies, the Gulf Cooperation Council (GCC) is moving towards a common currency in the region. The time has come to take the final decision . Will all the members of the GOC be part of the deal and will more members from outside be admitted.
Development in the Gulf Cooperation Area has not been uniform. Dubai has an average growth rate of 12 per cent; last year it was said to be 25 per cent because of heavy investment. So there is a notable rivalry between Qatar and Dubai and other states are joining the competition. Dubai now wants to develop as a tourist centre , as an educational centre and even a film production centre, Dubai is far ahead of others in the range of its activities.
Dubai also witnessed the first organised strike by workers – construction workers which it has handled tactfully because the workers grievances were genuine. They came mostly from South Asia.
It is surprising that at a time when the dollar is under heavy pressure touching its lowest parity with the euro, there is a demand in the country for devaluation of the rupee against the dollar. This demand sponsored by the exporters who find they cannot export far more at today’s price and is led by the commerce minister Humayun Akhtar Khan.
He has been pressing for the devaluation of the rupee for quite some time but in the present context it is an unjustified demand as the rupee is already afloat. Other remedies to reduce the cost of production, cost of transportation and cost of trading have to be found so that Pakistan can export more. It cant export far more if the textile production goes up nominally as it did in the first quarter of this year by 0.5 per cent.
The dollar crisis is partly the offshoot of the emergence of China as a very major exporter and second economic power in the world. The Americans are not able to match the Chinese prices and so there are several voices in America calling for the dollar to be allowed to go down. That, they argue, is the only affective remedy for the large American trade deficit.
China on its part is not willing to lower the exchange rate of its yuan unduly as that is not the solution to the problem which American faces.
America prided itself in calling the dollar the world’s currency but when the dollar faces a serious threat, it is not willing to take adequate remedial measures and protect the interest of those with large dollar reserves like China which has most of its $1200 billion foreign exchange reserves in dollars.
