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AS if constant pummeling on the forex markets was not enough, the dollar came under severe pressure at the recently-concluded Opec Summit in Riyadh, Saudi Arabia.
Since oil is being priced in dollars, countries that have made huge stockpiles of the greenback from selling oil don't like seeing the value of their currency reserves eroded.
While the host Saudis urged restraint lest the dollar fall even more, Iranian President Mahmoud Ahmedinejad scorned the greenback as a "worthless piece of paper".
Iran is pushing Opec to shift away from pricing oil in dollars and instead to a basket of currencies that could include the euro. It is already requiring its customers to pay in euros or yen. But this is largely a symbolic gesture because the price of its oil is still based on dollar benchmarks.
Hugo Ch‡vez, Venezuela's president, said: "The fall of the dollar is not the fall of the dollar, it's the fall of the North American empire; we have to be prepared for that."
The dollar has dropped 16 per cent this year against a basket of major currencies, and 44 per cent against the euro since the last Opec summit in Caracas, Venezuela, in 2000.
Iranian officials have said the average price of a barrel of their oil so far this year is, at $63, only $2 higher than for the same period of 2006. Priced in euros, oil has been cheaper this year than last.
Iran and Venezuela persuaded Saudi Arabia to agree to discuss the falling dollar at the next Opec meeting in Abu Dhabi in December, but a shift to an oil pricing regime based on the euro or to another currency is not a simple issue and is less likely to happen soon.
Meanwhile, the dollar's continuing fall is eroding the purchasing power of the Gulf Co-operation Council (GCC) currencies, which have taken a roughly nine per cent hit against the euro since mid-August, despite rising oil prices and revenues.
Even Saudi Arabia, a staunch dollar ally, is feeling pressure to take steps to make sure their citizens feel richer, not poorer.
If the dollar continues to fall against the euro some of the Gulf countries may follow the example of Kuwait, which shifted to a basket of currencies in May, and adjust their dollar-linked exchange rates accordingly.
Analysts project that the most likely country to move is the UAE, whose central bank governor Sultan Nasser Al Suwaidi has said that the dollar's slide had pushed the country to a "crossroads".
Experts think the UAE and possibly other Gulf countries such as Qatar may announce a de-pegging from the dollar at the next meeting of the GCC in the first week of December.
Saudi Arabia may not change the dollar peg, but could revalue the riyal against the dollar to give its people a semblance of fair value.
A revaluation of one or more of the Gulf currencies say in the range of a three per cent to five per cent appreciation would still worry US policymakers as it would be tantamount to a shunning of the greenback.
The dollar plumbed record lows against major currencies last Friday and briefly got close to $1.50 to the euro as concerns about the US economy rattled investors.
In these circumstances there would be some benefits to shifting away from the dollar or increasing the value of local currencies in places such as Saudi Arabia and the UAE since these oil producers are running up huge current account surpluses. Kuwait's and Saudi Arabia's surpluses, for instance, were 43.1 per cent and 27.4 per cent of gross domestic product in 2006, respectively -_a trend usually accompanied by rising exchange rates.
The total surplus of the GCC_countries in 2006 was almost $200 billion.
Moving away from the dollar also would give more spending power to the average citizen.
It might help ease labour unrest, which has become a growing problem on the building sites of the UAE.
The mostly Asian work force is incensed over the erosion of the value of the dollar-pegged dirham, now trading at 3.67 to the dollar.
Raising the value of the local currencies would take some of the sting out of imported inflation, which has become a political issue in countries such as Qatar and the UAE, where inflation is 11.8 per cent and 9.3 per cent, respectively.
