OH NO! It’s the End of the US Dollar! Hold up there chicken little…I’ll prove the dollar is not about to collapse and show you how to invest for the long-term. Do not get scared into changing your investments because some YouTuber is screaming about de-dollarization and the end of the dollar as the world’s reserve currency!
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The trend lately is for videos warning of an imminent crash in the value of the US dollar…and economic calamity to follow. Videos are getting millions of views and everyone is jumping on the bandwagon. Unfortunately for investors, it’s more entertaining than it is good analysis and viewers are jumping into investments that will ultimately lose their money.
I try to tell myself “don’t hate the player, hate the game” because I’ve met most of them. I know Graham and Kevin from an influencer’s conference and Andrei seems like a good guy (In fact, here’s the link to his video to see for yourself… [ Ссылка ] )I just hate that YouTube only rewards the most sensational video titles and ideas, even if it’s to the harm of viewers.
That said, the loss of reserve currency status for the US dollar would be a monumental shift and is certainly something you would need to plan for. But let’s look at the facts, what all the drama is about and how to invest around it.
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The dollar became the world’s reserve currency after the Bretton Woods agreement in 1944. It was there that governments agreed to, instead of backing their currencies with massive gold holdings, they would just hold US dollars to stabilize foreign exchange rates. The US dollar was linked to gold so it was thought to be as good as a gold-backed system for other currencies.
It gave the US enormous monetary power, constant demand for dollars meant lower interest rates on government borrowing. It also means better access to capital for US companies with foreign investors always ready to snap up dollar-denominated stocks and bonds. Even when the US stopped backing its currency by gold in 1971, the dollar kept its reserve status.
The big news lately is talks among the BRICs nations; Brazil, Russia, India and China to de-dollarize a part of their reserves to strengthen their own currencies. Because yeah, these four countries have a clue about how to run an economy.
The US dollar continues to be the go-to currency during uncertainty and hit a 20-year high against other currencies just last year. The Chinese Renminbi, the supposed alternative to a dollar reserve currency, has only increased its reserve status from 1% of holdings in 2016 to 2.7% last year…hardly the shift in dominance.
So if the dollar is losing its reserve status, it’s going to take a veryyyyyyy long time. At this rate, it will take 30 years for dollar holdings to fall to even 50% as a percentage of total foreign reserves. Of course, it will probably happen slightly faster than that but it will be so slow as to be imperceptible to 99% of investors. Even someone in their 20s will not likely see the economic effects of de-dollarization.
If you are worried about a sudden collapse in the dollar, then a diversified mix of inflation-proof assets also makes sense. Since commodities like oil, gold and metals are priced in dollars, as the dollar weakens these assets rise in price. Make sure you have some real estate exposure as well as commodities like miners in your portfolio.
Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
#china #dollar #reservecurrency
