U.S. Dollar can be another Titanic
Yes, what you read, it’s absolutely right. You can doubt it but let me draw a comparison, then it will be easy to find out the conclusion.
So far thousands of ships have been built and some of them have been sunk and precious lives have been lost but we only remember TITANIC and its tragedy.
Allow me to say this, people will remember the Titanic till the end of this world because it was a masterpiece. It was an exception. It is surprising us today.
In the 20th century, when the Titanic was built, people were not only overwhelmed just by its sheer size, the most impressive factor was its lavish interior. At that time, nobody imagined this. It was like a floating palace for travelers. All credit goes to the craftsmen and the interior design.
The interior design of Titanic:
Titanic’s interior design displayed a level of opulence. Its grand staircase was the crowning glory. During Titanic’s design, entirely new features were added that had never been seen before. Interestingly, It had a swimming pool, Turkish baths, squash courts, and gym as well.
The first-class public rooms included a dining saloon, reception room, restaurant, lounge, reading and writing room, smoking room, and the veranda cafes and palm courts and bars.
Just imagine the luxury, comfort, and excellence, the Titanic was carrying. In fact, it was the first ship that set an example for future cruise ships.
Accident and investigations:
Unfortunately, the “Unsinkable’’ ship crashed into an iceberg on its maiden voyage and sank. More than 1500 lives were lost.
It was one of the most famous tragedies in modern history. Later investigations revealed the human mistakes which caused this catastrophe. Some of them were:
- Lifeboats were not enough for all passengers.
- The ship’s speed was high.
- After its wreck was found in 1985, it led to another speculation that low-quality steel or weak rivets may have contributed to the Titanic’s sinking.
At 2:20 a.m. on April 15, 1912, the Titanic sank, and almost after one year in 1913, America established Federal Reserve.
In 1914, Federal Reserve issued 10 dollar notes. But the USA was using paper currency from the 17th century.
History of currency in the USA:
The first documented use of paper currency in the USA dates back to 1690, when colonial notes were issued by the “Massachusetts Bay Colony”. The usage of notes was for military operations.
In 1785, the USA officially adopted the dollar sign. The symbol evolved from the Spanish American figure for pesos.
In 1890, after the industrial revolution, the USA became a big economic power.
The dominance of the Dollar:
In the 20th century, the USA started flexing its political, defense, and economic muscles on the international stage. The USA became the world’s largest economy. It surpassed the UK but the majority of transactions were still taking place in British Pounds.
In fact, the majority of the developed countries pegged their currencies to gold as a way to stabilize “ currency exchanges”. When World War 1, broke out in 1914, many countries suspended their use of gold standard to pay their military expenses with paper money, which devalued their currencies.
England started borrowing money for the first time during the third year of the war. Finally UK abandoned the gold standard in 1931 and Dollar replaced the Pound as the leading “International Reserve Currency”.
During World War 2, before entering the war, the United States was supplying weapons and other goods to the Allies. Most countries were paying in gold. By the end of the war, the USA was the biggest owner of the world’s gold.
This made it impossible for many countries to return to the gold standard because they have depleted their reserves.
In 1944, delegates from the 44 countries met in Bretton Wood, New Hampshire, to discuss a system to manage “Foreign Exchange”. They decided that the world’s currencies would no longer be linked to gold but could be pegged to the USA. That’s because the Dollar was, itself linked to gold. The agreement came to be known as “The Bretton Woods Agreement”.
So the greenback was officially crowned the world’s reserve currency.
After this, other countries accumulated reserves of US Dollars, instead of gold. But after the 1960s, the space program and prolonged Vietnam War caused the United States to flood the market with paper money. With growing concerns over the stability of the Dollar, the countries began to convert Dollar reserves into gold again. The demand for gold was such that, US President Richard Nixon was forced to intervene and de-link the Dollar from gold.
Challenges for the Dollar:
The supremacy of the Dollar continued and then in the 21st century, it started facing other challenges.
After the 9/11 attacks, United States President, George Bush, authorized an executive order, which gave the United States power to throw out anyone from the global financial system.
Never before in history, not any empire was able to control the world finances system so easily. Here are a few examples:
- In 2015, when China tried to free it from Dollar’s financial grasp, the Chinese currency yuan dropped its value.
- In 2018, US President Donald Trump, made a negative tweet about the Turkish Lira. It lost more than 18% of its value in one day.
- In 2019, when the United States imposed economic and travel sanctions on Iran, its economy started shrinking.
After 1971, Federal Reserves was printing the right amount of money to keep the economy growing. But after 9/11, firstly the Afghan war and then the Iraq war put pressure on the US economy.
As the US is continuously flexing its muscles by setting up economic blockades and sanctions, there are flashing signs that many countries are growing tired and starting to doubt Dollar.
Dollar is facing hurdles like Titanic faced icebergs:
Since 2000, Russia is trying to reduce its dependence on the Dollar by stockpiling significant amounts of gold.
In 2009, Russia said that the United States currency is unstable. This was Russia’s disagreement with Dollar. In 20 years, Russia increased the amount of gold from 350 tons to over 2200 tons.
The United States has more than 8000 tons of gold.
In January 2021, Russia announced that now it has more gold than US Dollars in its reserves.
In June 2021, the Russian Finance minister declared that the national well-being fund worth 120 billion dollars will completely divest its exposure to the greenback and will replace it with the euro and gold.
Russia is not alone. China is putting serious efforts to acquire elite status for its currency.
As the world’s biggest trading nation, China wants to reduce the enormous power of the Dollar.
In October 2019, the Chinese President made a speech and encouraged blockchain technology. After the speech, blockchain technology became a national priority in China. Then a project was launched to digitalize their traditional currency by establishing the CBDC (Central Bank Digital Currency).
It seems to be working as China right now is in advanced development stages and it is testing its digital currency in major cities.
For the bilateral trade, China and Russia started paying in their own currencies.
Moreover, China has given more than 30 countries, access to the “renminbi”.
China has also gold reserves but it is less than 2000 tons.
The historic 2014 multi-million dollar gas deal between Russia and China, should be seen as one of many efforts to diminish the dollar’s role in oil and gas pricing, that is, to eradicate the dollar’s privilege as a currency backed by oil.
In January 2021, the EU issued a blueprint describing how it can promote the Euro. So it can boost its position in becoming the world’s reserve currency. By doing so, Euro will be able to compete with the dollar. It has been gaining massive support across Europe, especially after the United States sanctioned Iran in 2019. Due to this, European banks and companies suffered badly.
These are some challenges for the Dollar or like the icebergs for the Titanic. Such obstacles are posing risk to the Dollar.
This article is for informational purposes only.
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