This isn't good for US

A few weeks ago I reviewed The Euro at Ten: The Next Global Currency?. It asked if the euro was ready to challenge the dollar as the global currency, and answered, "No." One of the problems for the euro was that an established global currency had network externalities, and only serious mistakes by the country issuing that currency could dislodge it. Another weakness of the euro was that Europe is not a military power, and military power is an important complement to economic power in determining global currency status.

The world may think the US is making serious mistakes because there are reports of a concerted effort on the part of many nations to move away from the dollar.

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

One of the huge advantages of having the global currency is that other countries give us an interest free loan of about $500 billion by holding dollars that earn no interest. It is good to be king, or have the king currency.

Update: Some people are fretting over the embarrassment coming from the rejection of Chicago's Olympic bid, especially since the president personally intervened. It is an embarrassment for President Obama but not much else. The Olympics are a politician's dream but a taxpayer's nightmare. The rejection of the dollar as the global currency would be much more than an embarrassment; it would have important and real economic and political consequences. Pundits should worry more about it and forget the Olympics. The charge of being unpatriotic would makes sense if people cheered about this matter. It does not for the Olympics.

Update 2: A denial:

Big oil producing nations denied a British newspaper report on Tuesday that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in trading oil.

Update 3: More here, asking who was trying to destabilize the dollar with the original story, and also noting that the story has become believable. A few years ago no one would have paid attention to it.