DOLLAR UNDER ASSAULT AS WORLD’S RESERVE CURRENCY

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The proportion of dollars making up nations’ foreign currency reserves fell to 59 percent in 2020’s fourth quarter, according to the International Monetary Fund’s May report on its most recent Currency Composition of Official Foreign Exchange Reserves survey.

The dollar’s share is the lowest in 25 years and compares to 71 percent in1999 when the euro was introduced, the Wall Street Journal reported.

As we have detailed, after World War II, with much of Europe and Asia destroyed, the U.S. was the world’s manufacturing powerhouse... justifying the dollar’s position as the world’s common currency for commerce.

Now, with the U.S. making up only about a quarter of U.S. global output and China, Europe, and Japan having established themselves as economic power centers, that justification is harder to maintain.

The dollar’s increasingly precarious hold on the title of “world’s reserve currency” is threatened further by the U.S. Federal Reserve’s unwillingness to carry out its traditional function of raising interest rates in response to inflation.

And with the United States pumping trillions to pump up equity markets and the economy and plunging 28 trillion in debt and registering its worst debt to GDP ratio since World War II, inflation will undermine the dollar’s value. 

In addition, during the early days of the economic shutdown, investors dumped treasury securities for cash, spooking some observers about the liquidity of U.S. bonds and notes.

Buck Holders

Japan and South Korea, which depend on the U.S. for their security and defense, have held onto their dollars; since Biden’s election, China’s U.S. Treasury holdings have climbed from $1.05 trillion to $1.1 trillion.

China has proposed its renminbi as the dominant reserve currency, with the country’s Belt and Road initiative spreading the renminbi’s reach across the world and China’s robust economic recovery giving it greater market share in regions and industries around the globe.

The renminbi’s rising strength against the dollar also pleases foreign investors and banksters who, as we have reported in the Trends Journal, have poured money into China during the past year. This in turn has increased the yuan’s international standing.

TREND FORECAST: The business of America over the past century has been War. History is repeating itself. In the ten years following World War I, the British pound sterling was dethroned as the global reserve currency because of the financial damage the war inflicted on the nation.

The same is true for the United States, which just passed another record-breaking defense budget. Thus, we maintain our forecast that when China overtakes the U.S. as the world’s #1 economy in the next several years, it will begin the trend of overtaking the dollar as the world’s reserve currency

6 Comments
  1. Diego Santangelo 2 weeks ago

    With that said, should we be buying renminbi’s?

  2. harlow53 2 weeks ago

    Could the sale by Russia of $187 Billion of sovereign funds held in dollars be a part of the assault on the world’s reserve currency?

    Timely action by Putin before meeting with Joe Biden?

  3. Eagle11 2 weeks ago

    There is nary a problem the United States faces that is rooted in violating the Constitution in spirit as well as in letter.

    And the free market, truly free market, is like kryptonite to politicians and corporate elite.

  4. Craig Bradley 2 weeks ago

    DOLLAR’S DEMISE AN OVERSOLD STORY

    The reported (global) debasement of the U.S. Dollar has not reached extremes so far. In fact, a modest decline in the U.S. Dollar Index has already occurred in the past year. The U.S. Dollar Index has thus declined a more modest -10%.

    While certainly not advantageous to U.S. consumers of our many imports, its not the disaster some make it out to be either. Another words, this is old news, as a matter-of-fact. Currency markets are quite volatile on a short term or day-to-day basis, but the moves are normally very modest on a daily/monthly basis, as well.

    Just like most everything else, the value of the U.S. Dollar on the Foreign exchange markets cycles up and down, then down and up. However, Its no reason for Henny Penny to claim “the sky is falling” just yet. The Chinese Yuan won’t replace the U.S. Dollar for a long time to come but over the next 10 years or so, the Chinese currency will gain importance with Its Regional Trading Partners.

    So, by the end of this decade, there will be much more competition for global trade and China will proportionally have much more to say about the terms and conditions of payment, as well. America, after “calling the shots” for over 100 years may not like having to abide by someone else’s trading and payment terms.

    So, like it or not, we will just have to adapt to a changing world and get over it. Going to War with China (“Thucydides Trap” ) would mean we are desperate to retain our (financial) crown after its been taken away. Moreover, it would be a huge mistake for US to do so- possibly a fatal error. As such, we won’t need to worry about our national debt after a War because the records would not have survived the nukes (EMP’s) which hit the Homeland.

    https://www.belfercenter.org/thucydides-trap/overview-thucydides-trap

    https://www.marketwatch.com/investing/index/dxy

  5. Eagle11 1 week ago

    Right you are, lvblasiotti.

    If it wasn’t so serious it would be funny how so many dance around the obvious root of our problems, namely, the US as a nation has not only turned her back on God, but has no intention of repenting.

    The one true God, that is. The Jehovah God; the Father of our Lord Jesus Christ.

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