JERSEY CITY, N.J. – If, as is widely believed, the original tales of the 1001 Arabian Nights came out of Persia, then Iran, Persia's modern successor, has just given the world yet another great fantasy: the Iranian oil bourse.

Surely Tehran lost touch with reality when it developed its plan to use a new, euro-based oil exchange, on Kish Island in the Persian Gulf, to dethrone the greenback from its position as the world's reigning reserve currency. Such a project is neither likely to attract much business nor to have Tehran's desired effect on the dollar or the United States.


Tehran's plan of attack has the virtue of economic logic at least. Iran's planners recognize that the heavy use of the dollar in international trade sustains its foreign exchange value by forcing people to hold greater dollar balances than they otherwise would. The dollar's consequent strength encourages its use in other transactions, which requires still greater dollar holdings in a dollar-boosting cycle. Iran's planners hope that their euro-based exchange will disrupt this pattern. By forcing oil traders to hold euro balances instead of dollar balances, Tehran expects the oil bourse to induce dollar selling and consequently force a drop in value. Those foreign exchange losses will draw still more trading away from the dollar, further weakening it, until, ultimately, it loses its world-leading position. Iran's planners expect to do the US great harm in this way.

This economic logic, though reasonable from a theoretical standpoint, misses some very practical hurdles to success. Tehran's exchange simply is not attractive compared with the exchanges in London and New York, where dealers and traders are prospering amid their well-developed networks. On distant Kish Island, they would: (1) lack trained locals to work in their operations, (2) have to deal with a notoriously corrupt bureaucracy, (3) lose contact with a transparent financial, regulatory, or banking system, (4) lack the necessary technological infrastructure, and (5) sever most links to the globe's electronic commercial structures on which trading relies.