The U.S. dollar has long been underpinned by the “Petro-dollar”. Oil is traded as a commodity; and historically it has always been priced in U.S. dollars and traded in U.S. dollars. This ensured that vast sums of dollars were deposited in U.S. banks in order to complete energy related transactions. This in turn, has enabled the U.S. government to issue treasury bills to absorb these deposits – i.e. borrow and print money without limits.
“To some extent [the U.S. is] living like a parasite off the global economy and their monopoly of the dollar,” gripes Vladimir Putin.
But the rest of the world has been looking over U.S. shoulders with jealousy, and have schemed challenges to the supremacy of the U.S. dollar, without any real success.
First, the “Euro” rose to 30% of the world’s trade transactions but fell precipitously below 20%, as peripheral countries in the European Union seemed ready to default on their debt. And so, the whole ‘concept of a European Currency’ remains under review globally.
Then, we had China’s rise and the creation of its own version of the world bank. China’s currency was finally admitted into the world’s basket of reserve currencies. The Chinese Yuan too is challenging the supremacy of the Dollar. But for now at least, the Yuan only accounts for a small percentage of world transactions (compared to the dollar).
Saudi Arabians, under instructions from Obama undermined the world’s oil markets with floods of oil that drove down prices. A new economic war was declared on Russia and Iran with their main source of income (i.e. oil and gas sales) dropping a whopping 75% in a matter of months. Surely this would mean “Iran’s imminent bankruptcy” and force both Russia and Iran to withdraw from Syria and Yemen – without a drop of American blood being spilled. Yes, war – a cold war was in force.
And curiously, through it all, the value of the U.S. dollar versus other currencies kept rising.
What? Yes, the value of transactions conducted in Petrodollars diminished by 75% and the U.S. dollar rose!
And while Iran’s mullahs strike back against the U.S., by shifting all their transactions away from the U.S. dollar and moving Iran’s reserves into non-U.S. dollar denominated accounts; the U.S. dollar keeps rising!
The Chinese joined the world’s basket of reserve currencies, and what? The dollar kept rising!
It’s simple. The eDollar has trumped the Petrodollar.
Not surprisingly, Iran’s backward, Mullahs who live in a different age (intellectually) just don’t get it.
One key difference between this century and the 20th century that we left behind is that the whole basis of the world’s economy has actually – yes truly – changed. There has been a tectonic shift in the world’s economy. A revolution no less. And no one in Iran’s elite religious circles gets it.
Information as a commodity is now more valuable than any energy related commodity.
Don’t believe me? Here are the facts.
If you look at global lists of the 100 most valuable companies at the end of last year, internet driven enterprises on the list (companies like Apple and Google) accounted for $2.7 Trillion dollars in market value versus energy companies at $1.9 trillion. In the last year alone, energy companies have lost $1.3 Trillion in value, while just last Friday Internet driven companies like Amazon and Apple added $244 Billion in value in ONE DAY. Apple is now worth $840 Billion dollars and could hit $1 Trillion in valuation within a year or so!
The Petro-dollar has actually become the basis of the “Old World Economy”. The world has changed: Revenues and trade from the Internet economy are greater than revenues and trade from energy!
In terms of the US GDP: Energy accounts for less than 4% of the U.S. economy, while internet services account for 6% and growing fast. As reported by McKinsey: The Internet accounts for a significant and growing portion of global GDP. Internet-related consumption and expenditure, if measured as a sector, is now bigger than agriculture or energy.
The Internet’s impact on global growth is rising rapidly. The Internet accounted for 21 percent of GDP growth over the last five years among the developed countries. Internet is growing day by day, and internet has become a global source of communication all over the world. The world is now called a ‘Global Village’ because of Internet.
Recently, it was reported that the number of globally online users was 3.2 Billion in 2015, as compared to a report in 2014, in which Internet Population was 3 billion. It means 200 million new people have recently joined the internet community. In past the 10 years, 200 to 300 million people per year have connected to the internet. Facebook alone has over 2 Billion monthly active users!
Many Don’t Get it (including Iran’s Mullahs)
For example, consider that Iran is finally exporting oil again. And its pushing hard to get output up to 4 Million barrels a day. In a depressed market, Iran is squeezing its way back into the market – but insists on transaction settlements in any currency except the U.S. dollar.
Part of this currency strategy is fear of future sanctions and the “West’s history of sequestering Iranian cash again”. But also, there is a real effort on the part of Iran to debase the U.S. dollar – or petro-dollar as it’s called.
The Mullahs in Iran don’t know this. They don’t really understand this. They don’t appreciate this. They might be the last people in the world to actually figure this out.
When the West “Shat on the Shah” of Iran and engineered his fall and the rise of the Mullahs, and precipitated the Iran-Iraq war; they succeeded in shutting down both Iran and Iraq’s oil output – over 6 million barrels of oil was taken off the market. In May 1979, oil prices jumped from $15 a barrel to $28! And Soon hit $40 a barrel. This led to a very tight global market for energy commodities, which led to high oil and gas prices for almost 20 years. Prices were high enough to justify oil exploration and extraction from the most distant places (Alaska and Britain’s North Sea). Iran’s demise led to a boom in Britain, Norway and Alaska. Iranians (and Iraqis) suffered for British, Norwegians and Alaskans (American) prosperity. BP (and Shell) had vast interests in those fields; and by the way, have won ‘the’ most significant contracts for Iraq’s largest oil fields (in Iraq’s tranquil southern tip).
When the fields in the North Sea and Alaska dried up, and both UK and the U.S. started importing major quantities of oil….. guess what? Prices dropped. When you are a producer you want the price high, but when you are a consumer you want prices to be as low as possible. It’s all brilliantly planned and conspiratorial.
As one government insider in Britain has publicly stated: “I have been in meetings where these wars were planed and discussed, and it was all about resources. Our elite are ruthless and immoral!”
And the Mullahs can’t do a damn thing about it. They are and have always been western puppets or pawns. Like mindless robots – they have been manipulated, and used. They dance to music written in Washington and Whitehall – without even knowing it.
If the Mullahs were really smart, they would be turning their attention to the complexity of the eDollar. And studying how to debase that. To do that, they only need to take a look a what the Chinese are doing.
China sees the U.S. as a rival, and if the mullahs are truly anti-western, then they should surely take a page from China’s book. What is going on in China to combat the eDollar?
Well, I visit china often. And I can’t tell you how frustrated I get when I finally get to my hotel room (wherever I go – Shanghai, Beijing … you name it) and carelessly (thoughtlessly) type in google.com over and over again, and see nothing pop up. First I think there’s something wrong. Then I remember…. the Chinese have banned google. They have also banned Facebook, and many other sites.
If you look at the world’s top 20 sites (in terms of traffic), you see a bunch of Chinese companies that no one has heard of in the West, like Badu.com …etc. Yes, the Chinese are creating their own eCommerce systems and undermining Western internet giants. There is a Chinese Uber equivalent, there are Chinese Hotel booking sites, there is a Chinese Amazon equivalent (Alibaba.com), etc. There are Chinese versions of all major site. It’s easy to do this, if you want to undermine Western Internet dominance.
People Have No Clue.
In the internet age, what rules is connectivity. It’s all about the “network”. With internet site, there are serious advantages in “Network Effects”. Anyone can create another Facebook site, BUT, you can’t instantly establish Billions of users like Facebook. So if you own the network, then you have control. The users, actually establish site dominance.
And if, American companies own the users, then they control major internet networks. By supplying online account holders, American companies in turn control the internet and eCommerce.
Meanwhile, the Mullahs have their heads in the clouds.
It’s much more than Google, or Facebook. It’s about Amazon too. It’s about Apple’s iStore. eCommerce now accounts for a fast rising 25% of ALL transactions. The Chinese are investing heavily in this space too. And the beauty of it all is that the Network becomes more powerful with greater international engagement, exchange and travel.
When I flew to Amsterdam, I stayed at an Airbnb booked apartment. When I landed in Vegas, I got a ride to downtown using Uber. Surely, soon, Tehran will be offering Uber rides and Airbnb booked apartments too. And with every transaction on these sites, Iranians will actually (and ironically) be reinforcing the U.S. dollar. Because, like oil and gas, these online networks trade in dollars in their back offices.
But it doesn’t stop here. The trends now in the world of energy are to shift energy systems to ‘smart’ systems that can exchange information for energy. Smart homes, smart cars … the industrial internet of things (iot) … You can save energy by exchanging information. Don’t heat and cool a whole house, just control the climate where people actually are sitting or working … and save energy. Don’t drive alone, share a ride … find out who is going where you are … and save energy. Watch your industrial equipment closely and service it early … before it starts operating poorly … and save energy.
And think about this one: Energy efficiency itself is actually another energy commodity or resource. It takes one third the investment to “reduce” energy consumption than to add new energy production capacity. If you are running a utility – you are better off investing and ‘sharing’ in efficiency gains with your customers than to spend the same dollars building new plants.
“Information” is replacing “energy” in the context of energy use. Google paid over a billion dollars in a start-up called NEST several years ago – that sells intelligent home thermostats that save energy.
Now intelligent appliances, new vehicles, new sensors, …you name it… will be replacing energy with unlimited information processing.
In essence, the eDollar has replaced the Petro-dollar. This my friends, is the quiet, cold revolution that the Clinton and Obama administrations have engineered… to undermine the oil companies. There was a short-term push back by “W”, but it’s now truly too big to stop… even for the Trump administration, Israelis, Saudis and Russians.
And guess what? The Chinese get it too. They have been investing in energy efficiency at a rate that puts the U.S. to shame. There are more electric cars on Chinese streets. More electric car companies in China than the U.S.
So what should the Mullahs be doing?
Well, if the power is in network effects – then Iran should surely be establishing its own networks (like the Chinese). Iran should be developing strong regional hubs for every commodity that matters. They should be linking Afghanistan, Iran, Tajikistan, … you name it. Iran should be establishing regional grids and regional information networks i.e. an Iranian Facebook and Iranian Amazon, or Iranian Google … and do what the Chinese have done shut down google, and their brethren…
Iranians should never forget that it wasn’t trade based sanctions that crippled the Mullahs, but when Iran was denied access to the world’s financial networks (like Swift) that Iran’s economy was finally undermined. The Mullahs should be creating their own regional financial networks too. Iran should also create its own insurance networks, and Lloyds (insurance) equivalents.
The future of Iran and may I add, the central Asian region as a whole, relies on the creation of a highly integrated and unified group of nations – with consumers, companies, governments that are all part of a giant grid – or network. And the networks should be controlled within Central Asia (Iran) NOT in San Francisco or New York, or London or Tel Aviv.
There should be electric power networks, telecom networks, transportation networks, internet based social networks, defense networks, etc. Yes, the Mullahs should be making regional friends not enemies or fighting wars. It’s all about alliances.
The Network creation game is a game that Iranians can actually compete in and win. No one is better poised that Iran and Iranians to create and control regional networks in central Asia. No one. Iran’s language, culture, geography, customs, traditions are all uniquely suited for regional commerce and network building. And CAN NOT be easily duplicated in Silicon Valley.
Iran should be trying to establish eBanking and a regional internet currency like the eRial so that Iranians can at least to some extent control their own destinies. The “eRial” has real possibilities. Iran can dominate Central Asia’s information networks – it actually already does. Persian is a regional lingua franca for over 150 Million Central Asians: Afghans, Kurds, Tajiks, …! And then, there are more Azeris in Iran than Azerbaijan. Add Shiite-crescent neighbors like Iraq, Lebanon, Syria and Turkey (who also has a large Persian speaking Kurdish population) and even other neighboring nations like Turkmenistan to the package, and soon you have a trading zone with the same size and scope of other zones like the EU!
But here’s the catch. The Mullahs are actually not embracing all this because they are scared. The internet is now a dominant economic tool, but it is also a dominant political tool too. It’s actually a tool for democracy.
The internet may not be something the Mullahs can control. Proxy servers provide full access and openness on the web to all users. So this means people will be able to read, write and watch anything that’s out there. Creating Iranian Internet networks could actually liberate Iran and Iranians from Western dominance, but could also liberate Iranians from Theocratic control too.
In the end, a network will only succeed if its parts come together, find value in the network, and participate in the network. No one put a gun to anyone’s head to set up a Facebook or Amazon account. No one can truly control network participation! The Networks thus become more powerful than the central governments that try to regulate them or even physical borders of nations. Internet users in Iran or Central Asia will become more powerful than the Mullahs… or indeed any government… and Central Asia is dominated by Western Backed dictatorships!
In the end, it’s clear that dictators are doomed – one way or another. The Mullahs will not be able to impose their will indefinitely on all Iranians. No matter what they do, in the end, these Internet Networks will rule. You have to embrace technology – not fight it.