Based on the steady expansion of the US twin deficits over the last decade, economic theory suggests that the USD should have plummeted proportionately. In hindsight, it seems the only reason that the value of the USD was not severely eroded has been the status of the dollar as the world’s reserve currency. It has been known for years that the Central Banks of Asia have been stockpiling USD towards the dual ends of holding down the value of their respective currencies and guarding against the possibility of future financial crisis. However, as the price of oil has exploded, oil exporters have begun to amass similar quantities of foreign exchange reserves. Much of this can be attributed to the fact that oil contracts are priced and settled in USD. However, as tensions with Iran have escalated, many pundits have begun to speculate that Iran will retaliate by introducing oil contracts denominated in Euros, which would severely threaten the dollar’s reserve status.

Read More: The Proposed Iranian Oil Bourse