Saudis-Syria & Reserve Status of the Dollar

Bandar Prince

QUESTION: Your insight into the Saudi’s supplying the chemical weapons and arms to the Syrian Rebels long before anyone even had a hint of that was astonishing. I recently met someone in London who worked at your City Office. He said even Margaret Thatcher would ask you what was really going on in Russia. He said no one was as connected as you were. It seems that is still true today. With the Saudi rejection of a seat on the US security council protesting the refusal to invade Syria, is the reserve status of the dollar in jeopardy?

Thanks;

BCJ

ANSWER: It has always been the Invisible Hand at work. Clients around the world want the REAL story. The way to get that info is they share what they know in return. Hence, it is a two-way street. To make business and investment decisions, you need the REAL story that requires REAL sources. Attending our conferences you meet a good cross-section of people from around the world. People from central banks, investment houses, important families, corporates, and individuals  come together. They have always been like mini-UNs.

Yes, sometimes our sources were better than the various inteilegence services because there was a self-interest involved. Russia was building a secret underground facility in the early 1990s that could not be seen by satellite – today Google Maps. Maggie asked me what was really being built back then. I am sure the info was sought as a confirming tool.

Nonetheless, this entire Syrian play is not about Rebels and an oppressive dictator. It was about competing with Russia and getting a pipeline through Syria. That is the real story and Obama could care less if the Rebels carved off the heads of a 1,000 Christians with a dull knife. This was all about energy and Saudi Arabia was the source of the conflict. I disagree with them totally and doubt that they will be able to control the Rebels if the Syrian government falls. This would turn Syria into a crazy state that is out of control politically and morally. ALL of this just to get gas to Europe. The Saudis even promised Russia no terrorist attacks if they gave up Syria. So who is really in control of the terrorists?

Dollar-Note

The stability of the U.S. dollar reserve status does not depend on Saudi Arabia pricing oil in dollars. Saudi Arabia in turn has a strong interest in the stability of the dollar despite what they may hint at otherwise. The reserve status of the dollar will NOT change based upon what currency they price their oil in these days. The Japanese beat the German auto industry by pricing their product in local currency and taking the foreign exchange risk home. The Germans kept pricing their cars in Deutsche mark and as the dollar declined, German cars rose in price rapidly reducing their market share handing it to the Japanese based solely upon currency. The Saudi’s could believe their own threats that pricing oil in something other than dollars will topple the world reserve status of the dollar. However, they will will only introduce currency risk to themselves and risk losing market share as was the case for the German auto industry.

No doubt, the accumulative process changing the world reserve currency is created from many sources. Eventually, this will be one aspect but certainly not exclusive. It will require far more than pricing oil in something other than dollars to turn the tide in the eternal sea of politics to change the direction of the world economy. These are the subtle things that unfold and will eventually lead to a new world monetary system. It does not matter if the Saudis price oil in rubles. How do you park serious money in anything but dollars? Will pension funds allocate money to Russian bonds? Not very likely. When the economy turns down, the pressure will build.on the world reserves, but this is by no means because the U.S. dollar is used as the sole currency of oil trade. The problem with the dollar as a reserve currency will be caused solely by the fact that the such a status results in the exportation of domestic policy objectives into the sea of international economic policy objectives on a wholesale basis.