— Zaid Benjamin (@zaidbenjamin) November 13, 2014
What does this mean? As I’ve tried to explain before, the U.S. dollar has been the center of world trade and finance since the end of WW2. Oil, among other things, has been traded in dollars. So other countries need dollars (e.g., before they can buy oil). When they invest in bonds, they also like U.S. Treasury bonds.
All that has let the U.S. get away with running large deficits (both trade deficit and fiscal deficit). Other countries send us real goods in exchange for our paper (or electronic) dollars and Treasury bonds. That is why Walmart and Target have been able to supply cheap goods to Americans, all these years.
ISIS is saying, forget that! ISIS will exclude the dollar from its own financial system, and probably from its dealings with other countries. Remember, if these guys are successful, they will sell (or control) a lot of oil. If successful, they will be wealthy and important. Now they’re saying that their financial system will be founded on precious metals – i.e., NOT on the U.S. dollar or the U.S. Treasury bond. I feel certain that, if they aren’t doing so already, ISIS will also be trading oil only in non-U.S. currencies like the Euro or yen, and/or in gold.
If ISIS succeeds as a country, then, it’s another step in the world’s process of “de-dollarization”, or removing the U.S. dollar as the centerpiece of the world system. Although it is arguably an understandable and well-justified act, it is not a friendly act: ISIS is taking aim at (what they perceive to be) the heart of U.S. prosperity and power in the world.
I expect that the alarm bells in Washington are ringing a bit louder. At a minimum, look for President Obama to escalate his rhetoric against ISIS, with bipartisan support. (Which will mean, in the Democrats’ case, going against their own anti-U.S. / pro-Islam instincts; but they will.)