LONDON, Oct 6, (Agencies): The dollar’s future as the world’s top currency was thrown into doubt on Tuesday as a report said Arab states had launched secret moves with China and Russia to stop using the greenback for oil trading.
Arab states have undertaken steps with China, Russia, Japan and France to stop using the dollar for oil trades, the British daily The Independent reported on Tuesday, but this was denied by Kuwait, Qatar, UAE, Saudi Arabia and reportedly other nations. Despite the denials, the story sent the dollar sliding against rival currencies. In turn, that sent gold prices surging to a record high of $1,043.78 an ounce, as the dollar-denominated precious metal became cheaper for buyers using stronger currencies. It comes as the United Nations called Tuesday for a new global reserve currency to end dollar supremacy, which has allowed the United States the “privilege” of building a huge trade deficit.

“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,” The Independent newspaper reported on Tuesday.
They would instead switch “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 (GCC), including Saudi Arabia, Abu Dhabi, Kuwait and Qatar,” the paper added.
Jane Foley, currency analyst at Forex.com, said the report was “another chapter in the plot against the dollar as the world’s most dominant reserve currency.”
She added: “The dollar may be falling from grace, but it remains the case that since there are no alternatives its fall from pole position will be slow.”
Kuwaiti Oil Minister Sheikh Ahmad Abdullah Al-Sabah denied the report.
“Not at all,” Sheikh Ahmad said when asked by journalists to comment on The Independent story.
“At our level, no. We have never discussed or proposed this,” he said, adding that he was “unaware” of any Gulf state making such a proposal.
Qatar’s oil minister also flatly denied the report.

“Qatar has no information about what the newspaper has published and there are no secret or announced meetings concerning that matter,” Abdullah bin Hamad al-Attiyah told reporters in Doha.
Fisk however reported that secret meetings had been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which would result in oil no longer being priced in dollars.
“An eventual move towards oil being traded in a wider range of currencies is possible, but in our view, The Independent article makes it sound far more imminent than it likely is,” said Barclays Capital currency analyst Adarsh Sinha.
“In particular, the political consensus needed to achieve this would be very difficult, especially at a time when there is an apparent lack of consensus on more proximate issues for GCC countries, such as the Gulf Monetary Union.”
The report comes against a background of an agreement between China and Russia earlier this year to boost the use of their domestic currencies in bilateral trade at the dollar’s expense.
Both countries have called for a revamp of the global financial system in the wake of the economic crisis, saying there is a need for a new supra-national currency besides the dollar.

Meanwhile in Istanbul on Tuesday, UN undersecretary-general for economic and social affairs, Sha Zukang, said “important progress in managing imbalances can be made by reducing the (dollar) reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity.”
Zukang was speaking at the annual meetings of the International Monetary Fund and World Bank.
Iran has made a huge profit from its policy of increasing its sales of oil for currencies other than the US dollar, Central Bank Governor Mahmoud Bahmani was quoted as saying on Tuesday.
Iran a few years ago began increasing its sales of oil for currencies other than the dollar, saying a weak US unit eroded its purchasing power. The Islamic state is under US and UN sanctions over its disputed nuclear programme.
In late 2007, a senior Iranian official said the world’s fifth-largest crude exporter had raised to 90 percent its proportion of non-US-dollar oil sales. Iranian President Mahmoud Ahmadinejad has called the US currency a “worthless piece of paper.”
Bahmani was quoted by state television as saying on Tuesday: “Iran gained a huge profit after changing its basket of currencies (for sales of oil).”

He added, without giving details: “Currently the dollar has the lowest share in the country’s basket of currencies.”
Iranian Finance Minister Shamseddin Hosseini said on Tuesday he has in the past discussed with other countries the possibility of shifting oil trade away from the dollar, but such a step would require broad agreement.
Hosseini, speaking to reporters on the sidelines of the semiannual meetings of the International Monetary Fund and World Bank, said he had not held any such discussions in recent days.
“Some of the countries right now accept this idea,” Hosseini said of a possible shift away from the dollar for oil. “But this is one of the subjects that needs more discussion and (to be) agreed on by everyone,” he said through an interpreter.
Hosseini said Iran agrees with the idea of shifting oil trade to a basket of currencies due to dollar weakness.
“Generally we believe that the dominance of the dollar to the economy of the world is to the detriment of everybody,” he said. “We are not alone in this belief.”
The head of the United Arab Emirates’ central bank says the Gulf nation has no plans to stop pricing oil in dollars or tying its currency to the greenback.

UAE Central Bank Governor Sultan Nasser al-Suweidi told The Associated Press in a statement Tuesday that “there has been no meeting ... whatsoever” to discuss ending the US currency’s role in the pricing of oil.
The dollar fell Tuesday towards year lows against the euro and the yen.
But the denials did not stop the dollar selloff. By late afternoon London time, the dollar was down 0.8 percent at 88.80, while the euro was up by 0.7 percent to $1.4748.
Further sustained falls could see the dollar fall below its multi-year low of 87.11 yen, and the euro break above its two-year high of $1.4842, achieved last month.
Last week, figures from the International Monetary Fund showed that the dollar’s share of total reserves has fallen to its lowest level since 1995.
Meanwhile, Robert Zoellick, a former US trade representative who now heads the World Bank, warned that the currency’s status as the world’s leading reserve currency should not be taken for granted.
The dollar also suffered against the euro from a decision by the Australian central bank to raise interest rates — taken by markets as a sign recovery may be taking hold. New confidence reduces the dollar’s role as a safe haven in times of crisis.

Dollar worries are in part based on much larger US budget deficits and expansive monetary policy at the Federal Reserve, including rock-bottom interest rates and expansion of the money supply. Those are all policies that can undermine a country’s currency.
Bank of New York Mellon currency strategist Neil Mellor said the notion that Gulf states may look to reduce their dependence on the dollar is “potentially very significant indeed,” particularly as they share the dilemma with China over the value of their dollar holdings. Any move that undermines the dollars’ value would reduce the value of those extensive holdings.
Over the last five years, the dollar has broadly fallen against many of its main competitors, leading to calls in dollar surplus countries, such as China and the Gulf states, for a greater diversification in their currency reserves.
As a result, talk of the dollar losing its price function is nothing new — in 2003, Russia moved its ruble peg to a two-currency basket of the dollar and the euro. During the oil price boom in recent years, Russia built up big dollar reserves because of its status as one of the world’s major producers.
Meanwhile, China has taken stakes directly in energy and commodity producers in an attempt to diversify its dependence on the dollar.
Hans Redeker, global head of foreign exchange strategy at BNP Paribas, said Saudi Arabia, which has the biggest oil reserves, will be the key country when discussing which currencies oil should be factored in.

“What investors should not forget is that Saudi Arabia has an interest to keep the US strong and involved in the region,” he said.
“Switching the dollar for a basket of currencies for commodity factoring would weaken the US additionally, which would be against the interest of Saudi Arabia,” he added.
Asked by reporters about the newspaper story, Saudi Arabia’s central bank chief Muhammad al-Jasser said: “Absolutely incorrect.” He repeated the same response when asked whether Saudi Arabia was in such talks.
Analysts said that while individual countries would find it relatively easy to stop using the dollar in oil trades, as Iran has done, replacing the currency in which oil is priced would require a massive effort.
“I don’t think this is a likely scenario in the short to medium term,” said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. “Without Saudi Arabia’s support it is difficult to imagine that the dollar will be replaced.”