Today it became known that the Abu Dhabi Investment Authority acquired 4.9% of Citigroup for $7.5 Billion, This on top of the roughly 5% owned by prince Walid bin Talal of the House of Saud. Further, also today, Dubai International Capital bought at least 3% of Sony Corporation making it the first Arab acquisition of parts of a Japanese company. All this obviously on the strength of oil sales.

We say that the First Law of Money is that it remains constant, and the second Law of Money is that it moves from a place of high concentration to more diverse distribution - like the laws of thermodynamics. Passing the dollar in exchange for oil, does indeed reduce its value, because of a reduction in the US economy, but in terms of numbers, the dollars stay constant and only changed their residence.

From: William Tamblyn [mailto:wmtamblyn@yahoo.com]

The URL for this should be available at this site
 http://www.agorafinancial.com/afrude/

The Dubai International Financial Center’s weeklong conference
attracted a wealth of the brightest minds in the Middle East to
discuss, well, what to do with all the wealth in the Middle East.

Speaking on the final day of the conference a panel of investment
bankers, exchange directors and energy consultants offered their
outlook for the notoriously volatile energy markets over the coming
year. Afterwards, the moderator threw the question to the
audience who voted with hand held devices on where they saw
oil in 08. The audience, also packed with institutional investors
and presenters from earlier sessions, took to their keypads like
vegans to a tofu patty. The breakdown went like this.

$50-$99…3%
$100-$150… 51%

$151-$200…33%

> $200… 13%

“Those are certainly big numbers,” said Patrick Murphy, speaking
of the audience poll numbers.

Mr. Murphy, COO of IMEX, declined to speculate on an absolute price for the future of the commodity
but did add, “I would say we are going to be in a sustained high energy price environment and there will continue to be high volatility.”

“We’re looking for oil to rest somewhere between the $125 to
$130 mark for next year,” chimed Kamlesh Bhatia, Deputy Chief
Executive Officer or Man Investments Middle East.

Panelist Gary R. King added to the consensus, saying that demand
from emerging markets like China and India would continue to apply
upward pressure on the price of crude.

“I can’t see in the next 12 plus months and beyond there being a
decrease in the demand from those countries,” said King, CEO
Dubai Mercantile Exchange.

————-

Newsmax magazine of December 2007 writes that former US Federal Reserve Chairman Alan Greenspan says that 2007 may well be remembered as the year the Euro replaced the US dollar because, even though the dollar is still slightly ahead as a reserve currency, “it doesn’t have all that much of an advantage” anymore.

————-

Wednesday, Nov. 28, 2007

GLOBAL RESERVE CURRENCY
Hello to the euro, goodbye to the dollar

By GWYNNE DYER from London and posted on Japan Times.

It’s just straws in the wind so far. India’s Ministry of Culture announces that foreign tourists can no longer pay in dollars when visiting the Taj Mahal and other heritage sites; they have to pay in good, hard rupees. Iran and Venezuela call for a joint OPEC statement on the weak dollar, and Saudi Arabian Foreign Affairs Minister Saud Al-Faisal warns that any public reference to the dollar’s problems could cause the troubled currency to “collapse.” Rap star Jay-Z’s latest video shows our hero flashing a wad of euros, not dollars.

Only straws in the wind, but all in the past couple of weeks. For the majority of Americans who do not travel abroad, the only visible effect so far of the dollar’s steep fall has been higher fuel prices at the pump. The Chinese imports that fill the big-box stores still cost the same, because the Chinese yuan is still pegged to the dollar. But that may be about to change, along with many other things.

At the beginning of 2003, one euro bought one dollar. Eighteen months ago, it bought $1.20. Now it is pushing $1.50, and there is no reason to think that it will stop there.

Three of the world’s biggest oil exporters, Iran, Venezuela and Russia, are demanding payment in euros rather than dollars. Last week a Chinese central bank vice director, Xu Jian, gave voice to the suspicion of many others, saying that the dollar was “losing its status as the world currency.”

If that happens, then America loses a great deal. Other countries have to maintain large reserves of foreign currencies — most of which they keep in dollars — to cover their foreign debts, but the United States can pay its huge foreign debts in its own money. If necessary, it can just print more dollars. Having their own money as the world’s reserve currency confers advantages that Americans would miss if they lost them.

The main reason for the collapse of the dollar is President George W. Bush’s attempt to fight expensive foreign wars while cutting taxes at home. This involved deficit financing on a very large scale, and inevitably the value of the dollar began to fall — slowly at first, but with increasing speed as it became clear that the White House did not care.

“Ronald Reagan proved that deficits don’t matter,” as Vice President Dick Cheney told then-Treasury Secretary Paul O’Neill. But they do matter to foreigners. As the dollar fell in value, the price of oil (which is usually calculated in dollars) rose to compensate for it, but there was no comparable adjustment for foreign central banks that had huge amounts of dollars in their reserves. China, which was sitting on about a trillion dollars, simply lost several hundred billion as the currency’s value fell. So various central banks started wondering if they should diversify their reserves, and some acted on it.

The downward pressure on the dollar will continue, because the U.S. is currently borrowing 6 percent of its gross domestic product from foreigners each year to cover its trade deficit. Foreign banks were happy to go on lending so long as they had faith in the integrity of U.S. financial institutions, but that has been hit hard by the subprime mortgage crisis. Besides, other markets, notably China and India, now offer a better return — and Congress’ resistance to foreign takeover bids, combined with tighter visa restrictions, make the U.S. a less welcoming place for foreign investors.

Above all, there are now alternatives to the dollar. The last time it faced a comparable crisis was in 1971, when a different Republican president was trying to run another unpopular war without raising taxes. Richard Nixon devalued the dollar and demolished the Bretton Woods system that had fixed all other currencies in relation to the dollar, inaugurating the current era of floating exchange rates.

There was no other candidate then for the role of global reserve currency, so the dollar stayed at the center of the system despite all the turbulence. This time, by contrast, there is the euro, the currency of an economic zone just as big as the U.S., with the Chinese currency as a possible long-term rival. But nothing is likely to happen very fast.

The last time the world went through a change like this, it took over 40 years to complete. Before World War I the British pound reigned supreme, accounting for 64 percent of the world’s currency reserves and 60 percent of all international trade. Britain then impoverished itself in two world wars, but the dollar did not fully replace the pound until the 1950s.

Today the dollar accounts for 70 percent of both international trade and currency reserves, but it is probably starting down the same road. Many countries are replacing part of their dollar reserves with a basket of other currencies, and those who have pegged their currency to the dollar are starting to cut loose from it: Kuwait has already done so, and the United Arab Emirates is actively considering it. If China unpegs, things will move a lot faster, but in any case the long farewell of the dollar has begun.

(Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.)