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Iran vs the Empire: Fighting dollarization

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he West's attempts to destroy the Iranian economy through heightened
sanctions--including most imports, oil exports and use of banks for trade
operations--is having its affect. According to Johns Hopkins University
Professor Steve Hanke, Iran is facing hyperinflation, with a monthly
inflation rate of nearly 70% per month and its national currency, the
rial, plummeting in value against western currencies. Iran is the latest
casualty to be placed on his Hanke-Krus Hyperinflation Index, which
includes France (1795), Germany (1922), Chile (1973), Nicaragua (1986),
Argentina (1990), Russia (1992), Ecuador (1999) and Zimbabwe (2007),
countries which experienced price-level increases of at least 50% per

Hanke, relishing his role as the world's expert on this
nightmarish phenomenon, has "played a significant role in stopping more
hyperinflations than any living economist, including 10 of the 57
episodes" on his Index. He writes that Iran has three options:
spontaneous dollarization (people unloading rials on the blackmarket for
dollars, as happened in Zimbabwe), official dollarization (the
government withdrawing the currency in favor of dollars, as in Ecuador),
or a currency board issuing a new domestic currency backed 100% by--you
guessed it--dollars. Hanke insists that the foreign currency doesn't have
to be US dollars. Pitcairn Island, for instance, uses New Zealand

The inflation doctor admits vaguely that there are "foreign
factors", without a hint of criticism of not only the sanctions, but the
active subversion of Iran through everything from support of Iranian
terrorists, assassinations of leading scientists, right up to war (the
US encouraged Iraq to invade Iran in 1980). He emphasizes "Iran's
complex system of subsidies, capital controls, and multiple exchange
rates", but most of all "massive overprinting of money", though he
complains that "the Central Bank of The Islamic Republic of Iran has not
reported any such statistics for some time". As if a country living
through a state of emergency is likely to divulge such sensitive

He coolly dismisses consumers' expectations
influencing prices, since "fear surrounding military tensions is nothing
new for Iranians". Indeed, the US has been targeting Iran for
destruction ever since it threw off its colonial chains in 1979--a
dangerous example for other, especially Muslim countries. It is
miraculous that Iran has done so well economically since the revolution,
given the unremitting victimization it has experienced. One can only
marvel at the stubborn courage it has shown to build an Islamic society
in the teeth of opposition by the world empire and even by other Muslim
nations allied to the empire.

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We indeed may ask why Iran's
inflation rate has jumped so dramatically precisely in recent times. Of
course, it is because of the sanctions. And why the sanctions? Is it
really fears that Iran will develop a nuclear bomb, despite professions
to the contrary and membership in the IAEA? No. Besides Iran's role in
inspiring the current 'Islamic Reawakening' in the Middle East, there is
another very important reason, one which flies in the face of Hanke's
'three options' for Iran.

Those "options' all amount to one:
accept US-dollar dictatorship. Iran has been trying to trade oil in
non-US dollar currencies since 2008, when it opened its Oil Bourse. Iraq
did this in 2000, and the US reaction was invasion--dollarization at
gunpoint. The point of the sanctions today is a last-ditch attempt by
the US to force Iran to comply with the US world order, as epitomized by
continued acceptance of the US dollar as the world's reserve currency.

insists it is not necessary for Iran to use US dollars as its
substitute currency, which in any case would be ridiculous under the
circumstances. However, the alternative of using, say, New Zealand
dollars finesses the reality that all currencies are tied to the US
dollar, as the de facto international reserve currency. This has been
the case in reality since the 1930s, when the world abandoned the gold
standard. Acknolwedging this fact, over 20 countries call their legal
tender 'dollars'.

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Whether the government moves quickly to raise
the white flag, as in Ecuador, or belatedly, as in Zimbabwe, or insists
on printing pretty new paper scrip tied 100% to the US dollar through an
exchange board, as did Argentina, merely confirms the obvious. In past
cases, such as Chile, Nicaragua and Zimbabwe, the message was: your
socialist policies are unacceptable. In Iran's case, the message is:
take dollars for your oil.

Hanke's monetarist credo--printing
money causes inflation--ignores the underlying causes of inflation. As he
admits, Iranians have faced war fears for over three decades. The
exchange controls and subsidies, "government monopolies, price controls,
and Soviet-style economic planning", which Hanke calls "wrong-headed",
are not the cause of inflation, but a way for the government to keep it
under control. However, at a certain point, the "foreign factors" become
so egregious that even such measures fail. That is what has happened
now, as sanctions have created extreme pain for the average Iranian.
Bare shelves and panic in the face of invasion threats means that the
currency will devalue, however many rials the government prints.

is what happened in Germany in 1922, when it was forced to export
everything to buy the gold to pay the extortionate reparations. It ended
by resorting to Hanke's currency board and marks issued against gold,
but the underlying cause--the extortion practiced by Britain and
France--only ended when Hitler took power and canceled the reparations.
The devastation cause by "foreign factors" led in that instance to the
rise of fascism.

University of Missouri Professor Michael Hudson
maintains that "every hyperinflation in history stems from the foreign
exchange markets. It stems from governments trying to throw enough of
their currency on the market to pay their foreign debts." Canadian
commentator Stephen Gowans calls it "warfare by other means". Devaluing
the enemy's currency was used as a war tactic by Napoleon against the
Russians and by the British against the American colonists.

consideration of all the countries on Hanke's Hyperinflation Index can
trace similar real causes and real ways to end the underlying problem
that led to hyperinflation in each case. Ecuador finally took control of
its economy and reduced its foreign debt in defiance of the IMF under
President Rafael Correa, and is today the most popular political leader
in all of the Americas. That is what created political stability and
ended the ever-present threat of inflation there. The same goes for
Argentina under President Nestor Kirschner and Russia under President
Vladimir Putin.

Hanke is like the doctor telling the patient who
was shot that he must have his leg amputated immediately. He refuses to
condemn the sanctions as a violation of human rights, targeting the
Iranian people without cause. He wants to cut off the patient's leg to
save him, which he can do in a matter of hours. The Iranian government
is trying to remove the bullet and use a strict regime of
rehabilitation, something that requires patience and grit. There is no
magic cure to solve inflation under these circumstances.

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possibility looms that the US will undertake yet another criminal
invasion of a Muslim country, recapitulating its war crimes in
Afghanistan and Iraq. The real analogy for Iran is wartime. During war,
all countries ration scarce goods, and people unite and accept sacrifice
in the face of the enemy. This is the only solution for Iran today
unless it agrees to join the US-dollar denominated empire as a junior
member. Hanke's patient could well die under the 'anesthesia' of
US-Israeli bombs, but the Iranian people are proud and will fight for
their dignity till their dying breath. The worries about hyperinflation
will then pale in comparison to the real "foreign factors", and the US
will face the revenge of history for its criminal actions.

countries are too afraid of the US wolf to stand up to it. There are
exceptions. China, Russia, India and South Korea have not abandoned 'the
patient'. Egypt is establishing diplomatic and economic relations with
Iran in defiance of the US. Hopefully other 'Arab Spring' countries will
join Iran in pursuing a policy of justice for the Middle East, working
together to undo the horrendous legacy of US imperialism in the region.
Someday, "dollarization' will be a shibboleth, consigned to the "ash
heap of history'.


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Eric writes for Al-Ahram Weekly and PressTV. He specializes in Russian and Eurasian affairs. His "Postmodern Imperialism: Geopolitics and the Great Games" and "From Postmodernism to Postsecularism: Re-emerging Islamic Civilization" are available at (more...)

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