How Long Until The U.S. Dollar Loses Its Reserve Currency Status?
NYSEARCA:GLD, NYSEARCA:SLV Related posts: China Leads Campaign To Replace The U.S. Dollar As Reserve Currency U.S. Dollar: “Reserve” To “Laughing Stock” Currency In Less Than One Century Gold, Silver, and The Status Quo The Currency Carry Trade, G10 Currency Harvest Fund and Risk Why Knowing The Currency Risk Can Pay Off

us dollarMoe Zulfiqar: As Congress has come to a decision about the debt ceiling and kicked the can a few months down the road, I hear a significant amount of noise about the U.S. dollar losing its reserve currency status.

With this, I ask: could this really happen anytime soon?

Before coming to any conclusions, let’s dive into the basics. A reserve currency is the currency that is commonly used in the global economy; central banks keep it in their foreign exchange reserves and businesses do international transactions with it. One of the other characteristics of the reserve currency is that it is thought to be able to remain strong and stable over time. Currently, the U.S. dollar holds reserve currency status.

So what’s next?

You see, over the past few years, and especially since the financial crisis, the fundamentals of the U.S. dollar have gone downhill. The U.S. dollar is losing its stability and strength; for example, look at the long-term chart below of the U.S. dollar compared to other currencies in the global economy. You will see there’s a clear downtrend.

US Dollar Index Chart

 Chart courtesy of www.StockCharts.com

But this is just the picture of what has happened in the past. Going forward, the fundamentals are deteriorating further, and the speed at which it’s happening is picking up the pace as well.

To begin with, we have increasing national debt. It’s not very commonly said in the mainstream, but the U.S. government has the most debt, in nominal terms, than any other country in the global economy. And after Congress came to a consensus, it pretty much promised it would increase further—we will probably see such an increase in January. The debt of the U.S. economy is increasing more than the income—not a sustainable trend.

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Related posts:

  1. China Leads Campaign To Replace The U.S. Dollar As Reserve Currency
  2. U.S. Dollar: “Reserve” To “Laughing Stock” Currency In Less Than One Century
  3. Gold, Silver, and The Status Quo
  4. The Currency Carry Trade, G10 Currency Harvest Fund and Risk
  5. Why Knowing The Currency Risk Can Pay Off

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