Since the Bretton Woods Agreement in 1944 the U.S. dollar has been used as the world’s reserve currency. When a company in Brazil wants to purchase goods from a company in Uruguay, they probably do the transaction in dollars. Why? Because both parties trust dollars. They know that, unlike what’s happened to some banana-republic currencies in the past, the dollar will not lose half its value overnight.
Before the dollar was king of the hill, other countries’ currencies had this position of esteem. Before 1944 it was the British pound. The pound had been top dog in the pound for over 100 years. In earlier times the Dutch kroner, Spanish real and Portuguese escudo were in the pole position around the world. Each held the top position for about 100 years give or take.
It’s 2021, the dollar has held the position of reserve currency for 77 years. This year the U.S. debt will top 100% of the GDP and the Federal Reserve has no plans to stop printing money. Those who follow financial markets are starting to wonder just how much longer the world will keep faith in the dollar. With each new dollar that rolls off the printing press, the value of the dollar is diluted a little and the risk of price inflation increases.
Even if other world currencies are losing value faster than the dollar, eventually businesses and financial markets will catch on.
When that happens and the dollar loses its position as reserve currency what currency will take its place? The Euro? Nah. Too much infighting in the EU and too many weak sister members. The Renminbi? Nope. Most of the world does not trust China.
More than likely it will be a universal digital currency not tied to any sovereign nation and designed to maintain its value. Kind of like Bitcoin but without the restrictions of Bitcoin. Such a currency could be created by hackers like Bitcoin and Ethereum or it could come from the IMF or U.N., who knows?
What’s an individual investor to do today? Hedge your bets. Don’t put all your eggs in the dollar basket. Maybe make some investments in other currencies, in gold and in digital currencies.
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