Iran is simply being prudent in reducing their dollar reserves as central bankers finally understand that accepting the dollar as legal tender for international transactions means that they are exchanging their goods and services for a currency that is fast depreciating in value.

Our federal and state budget deficits are largely financed by foreign holders of the dollar. These budget deficits could not be financed if the dollar is not accepted as legal tender for international transactions.

The prolonged US trade deficit simply means that our expenses are greater than our income and these expenses are being financed by foreign holders of the dollar.

President Regan’s policies were based on the fact that, because of the cold war, Central Bankers world would accept the dollar in exchange for their goods and services without taking into consideration the profit motive; I think France was the only county that questions the long term wisdom of using the dollar as legal tender for international transactions.

Central bankers, by agreeing to accept the dollar as a “reserve currency” allowed President Regan to largely escaped the inflationary effects of dollar over-issuance.

President Bush tried to replicate President Regan’s success of not using taxes to finance costly, nonproductive government ventures; but what he has done is debased the dollar to the point where central bankers are trying to figure out how not to accept the dollar as legal tender for international transactions.

The decoupling of the dollar from international transactions will be economically painful for most nations; so Iran is doing the right thing not accepting the dollar as legal tender and thereby avoiding economic pain.