When Joseph Stiglitz proposed to move the world away from using the American dollar as the reserve currency, I doubt it was so that nations could circumvent economic sanctions. However, that is exactly what India and Iran are doing.
http://www.forbes.com/sites/kenrapoza/2012/03/20/india-facilitates-iran-oil-shipments-allows-for-non-dollar-deals/
Negotiations have been going between India and Iran since word of the US/EU sanction against Iranian oil and Iranian capital holdings overseas. In a move to cripple Iran's attempts at nuclearizing, the sanctions have in effect hurt those of our allies who rely on Iran for their oil, namely India and South Africa. South Africa has been forced to find alternatives, but Indian bankers have come up with a better idea.
Indian banks pay 45% of the value of Iran's oil in Rupees, which Iran will use to pay for its imports of Indian goods. A rather complicated issue which sounds simple enough, the deal will in effect make the Indian Rupee, never considered a strong currency, a de facto bilateral reserve currency. With $10 billion dollars of oil headed for India each year, and $2 billion of exports heading back from India to Iran (now planned to double to make up the difference - 45% of $10 billion is $4.5 billion), this deal will effectively save India from the US sanctions against Iran.
Actually, it will improve India. With exports needing to double this creates thousands of jobs, a great benefit for the struggling ruling party. In addition, with all the transactions for trade for at least the foreseeable future being done in local currency, this is just one more barrier to trade which has been removed.
So, Mr. Stiglitz, is this really what you want? Without the dollar as a global reserve currency, the United States' ability to sanction international finance and trade will, and arguably has already become, more limited. This is the story of removing the global economy from a US Treasury-backed reserve currency: as the global economy gains stability, it also gains further independence from the political influence of the United States. Some may see this as a good thing, since free marketers see sanctions as simply the political manifestation of forced inefficiency. However, without a peaceful way to limit Iran's advance towards nuclear power, what is the alternative method...?
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