Tom Luongo is not trying to be cute and his points and arguments are clear, which is not always the case. He takes a complicated set of issues and makes them understandable. This is one of his best. From Tom Luongo at tomluongo.me:
Live images flashing by
Like windshields towards a fly
Frozen in that fatal climb
But the wheels of time, just pass you by
-RUSH, “Between the Wheels”
In part I of this series I told you the war over the US dollar was over because the bane of domestic monetary policy, Eurodollar futures, lost the battle with SOFR, the new standard for pricing dollars.
The ignominious end of the Eurodollar system is a study in the evolution of markets, as a new system replaces an old one. Old systems don’t die overnight. We don’t flip a switch and wake up in a new reality, unless we are protagonists in a Philip K. Dick novel.
More than a decade ago I looked at the responses to President Obama cutting Iran out of the SWIFT system as the beginning of the end of the petrodollar system. The goal was to take Iran out of the global oil markets by shutting Iran out from the dominant dollar payment system.
Out of necessity Iran opened up trade with its major export partners, most notably India, in something other than dollars. India and Iran started up a ‘goods for oil’ trade, or as Bloomberg called it at the time, “Junk for Oil.”
The stick of sanctions created a new market for pricing Iranian oil and a way around the monopoly of US dollar oil trading. India, struggling with massive current account deficits because of their high energy import bill, welcomed the trade as a way to lessen the pressure on the rupee.
Iran needed goods. They worked out some barter trade and the first shallow cuts into the petrodollar system were made.