Concerns are rising in US media over a much-feared shock to the dollar once Iran and P5+1 reach a deal over the Iranian nuclear energy program.
The dollar is getting perilously close to losing its status as the world’s reserve currency, and the nuclear deal with Iran could push it over the edge, warned the Patriot Post journal on its website on Sunday.
Iran and P5+1 are working on the draft of a final agreement over the Iranian nuclear energy program. The agreement – that has a deadline of June 30th – envisages the removal of certain sanctions against Iran in return for certain steps by the country to limit its nuclear energy activities.
The prospects for the removal of the anti-Iran sanctions have already encouraged global businesses to look for potential areas of investment in Iran – what many believe could eventually strengthen the Iranian economy, boost the rial and at the same time undermine the dollar.
“For years much has been written about the risks from debasing our currency as a result of deficit-spending, debt-accumulation and reckless money-printing. What’s vital to grasp now is that Americans will experience an abrupt decline in living standards once the dollar loses its status as the world’s reserve currency,” the Post added in its article.
It further warned that the dollar’s demise would also precipitate a new financial crisis — one that would make the 2008 collapse look like a summer storm.
“The US is a relatively benign economic world power. No one knows what it would be like if, say, the Chinese yuan becomes the reserve currency for global trading. But it’s apt to be far less benevolent than the dollar norm we all now just take for granted,” it added.
The article further echoed concerns by market analysts that an emerging preference of nations to trade in non-dollar currencies is already jeopardizing the world’s largest economy.
This follows an announcement by Tehran that it is working on a mechanism to trade with Turkey in the local currencies of the two countries.
“If other nations follow suit in abandoning the dollar for trade, the dollar would face an avalanche of pressure, with central banks world-wide dumping excess dollar holdings they no longer need,” it said.
“Its demise as the reserve currency could happen overnight, be irreversible, and produce a new financial crisis that would hit Americans disproportionately — causing a collapse in bond prices and a spike in interest rates that would make servicing US debt unaffordable.”
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