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The Deconstruction of the Dollar
pmcapital.com
October 10, 2017


Based on history, our current fiscal policies and what is happening around the globe, I don’t believe our greenback will remain the world’s reserve currency long-term.

Historically, the country that dominates global commerce is the world’s reserve currency. Spain and Portugal dominated the 15th and 16th centuries. (Spanish Dollar) The Netherlands ruled the 17th century. (The Gulden) In the 18th and 19th centuries, it was France and Britain (The Pound). In the 20th century, the United States has held the global economic power. (U.S. Dollar)

Looking back, a reserve currency transitions every 80-110 years. So when we look at our country’s global dominance in trade (early 1900s) and the official reserve currency designation in (1945), that puts the U.S. dollar between 72-97 years as the dominant currency. Is our currency somehow going to be different than all others?

I believe that our overprinting of dollars and lack of fiscal restraint coupled with the emergence of other economic powerhouses and their lack of confidence in our fiat currency continues to erode our dollar’s hegemony.

For many years America has been the world’s unchallenged superpower. We were a huge importer of goods and services from countries all across the globe who now, consequently, hold our dollar-denominated Treasury bills to pay for those purchases.

But in recent past, because the Treasury has created so much money and our national debt continues to skyrocket, governments around the world are getting nervous and are reducing their holdings of our dollars as they see the dollar’s purchasing power being diminished. Further, an increasing number of bilateral trade transactions are also bypassing our fiat currency.

The world is losing confidence in the dollar.

If all those dollars end up back in the U.S. can you imagine the huge inflation that would result? The purchasing power of our money would dramatically decrease.

The reliance upon the U.S. dollar is under significant attack.
Look at what is happening with the petrodollar system—i.e. the oil revenues denominated in U.S. dollars, more commonly known as the “oil for dollars” system. Since the 1970s, when the U.S. cut a deal with Saudi Arabia, all oil trade has been denominated in U.S. dollars.

This meant that countries wanting to buy oil had to do so in dollars, which logically caused an increase in demand for our dollar across the world’s markets. But, at a recent BRICS summit (Brazil, Russia, India, China, South Africa) there were comments made about the “excessive domination” of a limited number of reserve currencies (i.e. our dollar) which implies a move by major world economies to further bypass the U.S. dollar and the petrodollar.

It’s no wonder that the largest exporter of oil (Russia) is now dealing directly with the largest importer of oil (China) in the Chinese yuan. And further, China announced that an exporter of oil that accepts yuan can also convert it to gold on the Shanghai Gold Exchange. This obviously alleviates any concern a partner might have with the stability of the yuan. Obviously, that yuan-oil-gold flow completely cuts out the need for the dollar. Venezuela has signed on to this mechanism of bypassing the dollar too.

As economist Jim Rickards recently noted –cracks in the dollar are getting larger.

What does this all mean for us? When our dollar is under attack, it has huge implications for investors– dramatic devaluation could occur, leading to extreme inflationary pressure, higher prices and dramatically rising interest rates.

We have to acknowledge this potential risk and plan for the exposure that the U.S. dollar may not remain the world’s reserve currency, which could cause a devastating hit on future generations.

https://pmcapital.com/the-deconstruction-of-the-dollar/