The steep rise in gold prices Tuesday at the New York Stock Exchange, largely on rumors about an end to dollar-denominated oil trading, was telling. The rise which was aided by fears about the United States inflation (and hence the U.S. dollar), came in the wake of alleged meetings by mainly Asian and Gulf Arab states as well as France to denominate oil transactions in a basket of currencies including gold. While governments of some of the nations have since issued denials, there remain reasons for concern:
First, the recent economic recessioin has challenged the seeming invincibility of the U.S. economy. Earlier-bandied doomsday scenarios having since been allayed, further pressures on the U.S. currency, due to rising fears of massive government deficits, may yet inform the alleged redenomination.

Secondly, emerging economies such as China, Brazil and India, seem to have recovered from the recession much faster than the U.S. and are reportedly growing much faster. For example, growth projections for China’s economy over the next ten years outpace that of the U.S. by at least a four-fold margin. If this pace were sustained, she would certainly challenge the ‘supreme’ global economic position of the U.S. in just a few years. The increasing economic significance of some of these emerging economies may be implicit in their recent admission to an expanded (G20) global economic decision-making body as well as the ceding (even if symbolic) of voting rights at the International Monetary Fund, IMF.
The rapid rise in China’s global economic strength does evoke concern. For example, China’s proposed oil deal with Nigeria has caused some flaming dyspepsia among oil majors operating in that country, especially in their ability to compete. Other African countries like Uganda and the embattled Sudan have significant Chinese presence in their respective energy (and in the case of Sudan, defence) sectors. Countries of the Arabian Gulf are certainly not left out nor are those of South America such as Brazil and Ecuador among others. Even the recent decision by North Korea to return to the nuclear arms discussion table has been attributed largely to pressure by China. When these are viewed in the light of China’s massive oil thirst, her alleged support for the redenomination of the oil trade currency cannot be ignored.

The third reason is the resentment (even if muted) of the U.S. by some nations around the world due to her perceived brashness and condescending attitude towards them. These nations may just be too happy to see ‘economic supremacy’ wrested from the U.S. Iran, with about the second-largest oil reserves reportedly announced recently, the denomination of her oil trade in euros.

Central bankers around the world may live in dread of China’s economic muscle, but with dollar assets in the trillions, she can ill afford any collapse of the dollar. This perhaps informs her reported preference for a gradual redenomination over a period of ten years.