Is the Dollar About to COLLAPSE as the World’s RESERVE CURRENCY?

Is the dollar about to collapse as the world’s reserve currency? As of last week, the petrodollar, the 50 year agreement between the United States and Saudi Arabia to price all international oil transactions in US dollars, officially came to an end. This caused a number of forecasters to openly ask: does the end of the petrodollar forecast the end of the US dollar as the world’s reserve currency? And if so, what’s replacing it?

– The share of global reserves held in U.S. dollars has dropped from 72% in 1999 to 59% today.

– Non-Western central banks are leading the charge in buying gold, with China being a significant player, accounting for a large portion of global gold purchases.

– The shift away from the dollar could constrain the U.S. Treasury’s ability to print money recklessly.

Forbes had a fascinating article a couple of weeks ago on how the Fed is, in their words, ‘quietly admitting that the dollar is increasingly being replaced’ by gold. Nations are increasingly returning to the timeless value of gold and silver for their financial reserves, but the Fed is doing everything they can to downplay this great return.

Venture capitalist Balaji Srinivasan couldn’t help but mock the Fed and their ridiculous denialism. He noted that while the Fed is now admitting that countries are moving to gold, that admission is tempered by the claim that it’s just a small group of nations. Balaji lists that “small group of nations:” China, India, Russia, and Turkey. This “small group” of nations represents 3 billion people. That means nearly 40% of the world is moving away from dollars towards gold. We are already seeing the effect of this.

The percentage of global reserves in the U.S. Dollar has fallen from 72% in 1999 to a new low of 59% today. This is one of the reasons why the price of gold has been soaring. Over the last six months, the price of gold has shot up 23%, lifting the commodity to its highest price ever!

Nations like China are dumping the dollar and putting their reserves in gold. That’s why Western nations today are no longer the chief buyers of gold. China today accounts for upwards of two-thirds of global gold purchases, making it the undisputed current king of gold. It’s not just China. It’s now widely recognized that non-western central banks are seriously buying up gold.

That buying spree appears to be just getting started. Forbes recently featured an article that found that more central banks around the world are starting to sell off and even avoid US Treasury securities. A decade ago, foreign central banks and investors owned 43% of our national debt. Today, that number has dropped to just 30%. Central banks are serious about this. A decade ago, central banks acquired just 4% of the world’s gold supply. Today that number has shot up to 35%. This is why the price of gold is expected to continue to climb. More nations are dropping the US dollar and instead turning to gold as a hedge to the declining dollar!

If more nations are going back to gold and silver for their financial reserves, where does that leave the dollar? The good news is that because of the dollar’s reliability and stability, it remains very strong and sought after around the world. There has been significant dedollarization, but we have to distinguish between how much a currency is kept as a share of the reserves of central banks around the globe, which has definitely decreased, versus how much it continues to be used in everyday global financial transactions. This is where the dollar remains very strong.

While nations are clearly seeking alternatives to the dollar, it still overwhelmingly dominates as the currency by which people lend or borrow or save. It remains the dominant currency by which most nations measure their own assets and debt. It’s important to put this very real economic transition in perspective. Though the dollar is increasingly being marginalized among the BRICS-block member nations, the dollar is and will remain very strong for the foreseeable future even though it’s going to have some major competitors and counterparts.

One very important development appears to be already happening. As more nations de-dollarize, less will be buying up the US debt. Nations buying and selling in US dollars in turn inordinately purchase US Treasury bonds with their surplus dollars, so as not to lose money in the exchange process back to their own currencies. This in turn allows the US government to print up pretty much as much money as they want because they assume that plenty of foreign nations using the US dollar will purchase up all the debt in the form of US Treasuries.

Dedollarization means that the Treasury can no longer continue to print money at the pace it’s been doing over the last several decades. This means that perhaps, finally, our government can at least begin the process of living within its means and stop the endless funding of foreign wars. This could make them prioritize the interests of the people over the interests of a financial class led by an out of control Federal Reserve. If that happens, dedollarization may not just benefit the international community, as it may have extraordinary benefits here at home as well!

Copyright, 2024.

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