Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

Is Conflict with Iran Economic warfare?

There has long been conflict between Iran and the west. In the coming months, if not weeks, many are predicting a war. But could the war already be going on?

Economic sanctions are nothing new, where countries restrict trade with a single country to try and force an issue, but the USA seems to have taken this a step forward recently with Iran.

The US government targeted the central bank of Iran; threatening international banks that they would be excluded from the global dollar payment system if they continued to work with the central bank.

Suddenly, there wasn’t many dollars in the country and the rial (Iranian currency) dropped in value against the dollar by 40%. Local prices doubled as panic spread and Iran had to raise interest rates by more than 20%. In days the US had shattered the exchange value of the rial, caused hyperinflation and a dramatic change in interest rates.

It’s a strong economic weapon the USA have, though how long it will last is debatable. The dollar has seemed weak in recent years and countries such as China and Russia have looked to move away from it. This was shown, returning to Iran, as India and China have looked to keep trading by looking outside of the dollar based system, with India putting together a deal of gold for oil.

With Iran an important player in the oil market, countries will continue to trade with them even if it means moving away from the dollar. With China, they will be promoting the yuan as an alternative world currency; their continued growth into a global superpower giving it a strong foundation. But India’s use of gold is an interesting idea as a return to the gold standard that preceded the rise of the dollar. Both show a weakening in support for America’s currency that has appeared withering since Obama approved quantitative easing of around $2tn over the last three years weakening the value of the dollar.

So with the US finally realising how important a weapon the dollar can be, is it now too late?


Single Post Navigation

One thought on “Is Conflict with Iran Economic warfare?

  1. Pingback: Economic Sanctions, how effective are they? « The fascinating world of economics

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: