I've always thought that it would spell economic disaster if the world suddenly stopped using dollars as its means of transacting business and now it looks like hints of this may be occuring.
Here's the story. Because so many Americans innundated their congressman's inbox with pleas to deny Dubai Ports World thier ports contract, the arab world is now vowing to move thier central bank reserves out of US Dollars and into Euros. Countries such as the United Arab Emirates and Syria have made plans to swap out the dollars and countries such as Saudi Arabia are pretty miffed at the US's actions as well and might follow suit. This is bad. We in the US are suffocating in debt and the only thing keeping us afloat are the investments that other countries give us in the form of buying our bonds and using our dollars (Japan and China own the lion's share of our debt, by the way). If this counter-move by certain arab countries gathers steam and more and more countries dump the dollar, our currency will tank and interest rates will most likely skyrocket as the Fed tries to make the dollar more attractive and of course really high interest rates will skewer the economy. Will this be the event that really does us in? I don't know but I do know that we cannot afford to be protectionist. If we were solvent, maybe but we're far from that.
I'm also keeping my eyes on what Iran plans to do with petrodollars. OPEC countries have used the US dollar as the de facto currency. One of Iran's stated threats to us is that they will start using Euros instead of dollars for oil transactions. This, in my opinion, is a much greater threat than any nukes they may develop. Because dollars are used for the most important commodity in the world it lends legitimacy to our currency. Take that away and people might begin to believe that "the full faith and credit of the US" isn't worth much anymore.
