Yep, it doesn't fall trippingly off the tongue like "WMD" or "Axis of Evil" but make no mistake, this is going to be a huge problem for the United States.
"De-dollarization" refers to the withdrawal from U.S. Treasury bills and U.S. currency that would result if foreign states concluded that the U.S. government could no longer sustain its massive budget deficits.
Count on hearing more about this in the next few weeks since the topic is slated to be discussed at the upcoming June 15-16 SCO meeting in Yekaterinburg. I've written about the Shanghai Cooperation Organization (SCO) before. Member countries comprise 1/4 of the world's population, include 2 nuclear powers, a major oil producer, and major gas producers. AFter the June meeting, if Iran and India are given full membership, member countries will include almost 1/2 the world's population, 3 nuclear powers, and 2 oil producers.
If you think "de-dollarization" is not a big issue, you haven't been following Geithner's recent activities. He has been busy reassuring the Chinese we are going to keep inflation under control so all their dollar-denominated holdings don't go the way of GM stock. Now comes a new wrinkle suggesting the "de-dollarization" movement is gaining steam...
Turns out the BRIC (Brazil, Russia, India, China) countries are scheduled to meet June 15-16 in ... Yekaterinburg! They will be part of the SCO summit. Russia and China will already be there as members in both groups. India has observer status in SCO. The new wrinkle is Brazil's presence. Brazil is Latin America’s largest market, the world’s fifth-most populous country and the world's tenth-largest economy in GDP terms.
This is not a low-level get together. Prime Minister Manmohan Singh and Chinese President Hu Jintao along with the presidents of Russia and Brazil will be in attendance. All the big shots will be there... and the US is pointedly not invited.
When you consider how many dollars these countries hold, the issue takes on even more significance. China has about $1.5 trillion in US dollars, Russia has about $500 billion, India has about $300 billion, and Brazil has about $200 billion. That's a total of $2.5 trillion that could start getting dumped in favor of a more diversified portfolio.
One major factor keeping the dollar as the international reserve currency is the fact that oil is dollar-denominated in most places. Iran, already clamoring for full membership status, would be happy to trade oil in euros or some other currency. Iran has been selling its oil for euros for quite some time. A lot of its international deals are denominated in euros. As are Russia's,China's and Brazil's. Adding Brazil to the mix strengthens the movement away from the dollar in our own hemisphere. Brazil has been moving in this direction since 2005, Venezuela has been pushing this since 2007.
The bottom line? When the US invaded Iraq, the Chinese take on it was reportedly "Gulliver is tying himself down." Now that the world's largest economy is tied down, expect the Lilliputians to band together and start dictating new terms. So much for the neo-con dream of the New American Century.