A Dollar Shortage?: Abu Dhabi Queries Decreased Dollar Supply

A lot of people will have wondered why the US dollar is so strong when for the past two years a lot of pundits (including our own Phil T. Looker) have been warning of the imminent collapse of the US dollar and the Petrodollar system that props up world trade. We, and the others, including respectable journals such ass The Economist and The Financial Times have reported on moves led by China, Russia and Iran to actually replace the US$ with a specially created reserve currency because the USA has constantly abused its position as holder of the main reserve currency to rig prices in commodity markets to its own advantage.

In our omnibus page, Currency Wars we have reported the various moves in this geopolitical chess game. But that still does not clearly answer why the dollar is so strong when it should be weakening.

It’s not entirely clear whether Saudi Arabia knew what they were setting in motion when the kingdom moved to deliberately suppress crude prices at the end of 2014. Though Russia and China have been busily signing up other nations to bilateral trade deals that would transact business in the currency of the vendor nation, huge systems like the global economy cannot be changed overnight and so most trade is still done in dollars.

Completely separate from any of that, the USA had made a lot of noise between 2010 and 2015 about how due to the economic viability of extracting oil and gas from its vast shale beds, it was poised to regain the position of world’s leading oil and gas producer. And naturally the Saudis did not like that.

The medieval Kindom’s idea in increasing production and reducing pricess of crude oil at the wellhead was to preserve market share by driving down prices until it was not comercially viable to extract oil and gas by fracking the shale, thus bankrupting the US shale space and if there were “ancillary benefits” – like say forcing Moscow to give up its support for Bashar al-Assad – that would be a bunus.

Unfortunately for Riyadh, things didn’t really go as planned. The kingdom’s budget deficit ballooned to 16% of GDP (which, for the uninitiated, is an unmitigated disaster) and this year’s target of 13% will invariably prove to be elusive unless the Saudis decide to either drop the war in Yemen and drop the value of their currency, the Riyal, or both.

In any event, the demise of the petrodollar has predictably created a shortage of, well, petrodollars, as the USA holds on to its currency to keep the value up, and the currency traders in London, New York and Hong Kong take advantage of their opportunity by screwing the people who need dollars to pay their bills.

The place most affected so far is the United Arab Emirates (UAE).

“National Bank of Abu Dhabi PJSC, the United Arab Emirates’ largest bank, said there’s a reduced supply of dollars in the country as the region grapples with the impact of oil trading around $30 per barrel and credit downgrades,” Bloomberg reported, on 1 March,  adding that “banks in the U.A.E., holder of the world’s sixth-largest oil reserves, are facing deteriorating conditions as lower crude leads to a decline in government spending, slower economic growth and falling asset quality.”

There is a dollar shortage,” PJSC CEO Alex Thursby told reporters in Abu Dhabi on Wednesday. “It’s not yet a crisis, but it is tightening.”

As Bloomberg goes on to note, “the U.A.E.s’ banking sector has lost 56 billion dirhams ($15.25 billion) in government deposits since September 2014.”

Right. Which doesn’t really come as a surprise. The Saudis have (possibly inadvertently) ushered in a new era for the world’s oil producers. This is “life at $30/barrel” per se.

As if the developed world did not have enough major problems already.


Elsewhere: [ The Original Boggart Blog] … Daily Stirrer …[Little Nicky Machiavelli]… [ Ian’s Authorsden Pages ]… [Scribd]…[Wikinut] … [ Boggart Abroad] … [ Grenteeth Bites ] … Ian Thorpe at Flickr ] … [ Tumblr ] … [Ian at Minds ] … [ Authorsden blog ] … [Daily Stirrer News Aggregator]

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