People dream about the demise of the dollar. Endless conspiracy theories circle about no value, printed money and speculation. The boom of crypto currency brought with it claims for “new economies” and “better money”.
Many conspiracy theorists dreamed of a new money era.
Instead the dreamers received a securities ruling (see my article published in Data Driven Investor) and the dreams of alternative money turned to nightmares.
GLOBAL RESERVE CURRENCY
There is no such official definition. The US dollar is the closest thing to referencing a Global Reserve Currency. According to the Currency Composition of Official Foreign Exchange Reserves (COFER) the US dollar accounted for 61.8% of the 10.9 trillion in allocated foreign reserves. COFER went on to publish more date that stated the first quarter of 2019 stated new allocations were 94% US dollar.
In 2000 COFER reported around 70% and was more than 80% in the 1970’s. The second place EURO accounted for 20.24% of allocated reserves in 1st quarter 2019 according to COFER.
Ladies and Gentlemen the demise of the US Dollar is a long way from seeing its demise.
UNDERSTANDING US DOLLARS
The United States of America good, bad or otherwise is the largest economy in the world. True giants can come crashing down from heaven.
The thing to remember is that a giant is falling.
There is no fast way to accelerate the collapse of a tower stretching to the heavens. Similar, the world is not simply going to change its entire monetary reserve in a short period.
Similar to the universe relationship of time (compared to us humans) money does not use human reference points for time. The collapse of a global reserve system takes quarter centuries not decades or years. The Federal Reserve Board economist Ruth Judson estimated nearly 60% of all US Dollar Bills are held overseas.
In 1990 only 20% of all US Dollar bills were estimated to be overseas by the Federal Reserve Board.
KEY INDICATORS TO PAY ATTENTION TO
The fact more establishments flock to the United States is a key indicator that no short term eminent demise is prevalent for the US Dollar. Although the US Dollar left the Brenton Woods System under Nixon its departure did not change the fact value is perceived.
We do not pay with gold coins, or pay with dollar bills representing gold. We changed to dollar bills that represent credit worthiness nearly 100 years ago. Now the credit worthiness has changed from intrinsic value to “big data” and “pure confidence”. Today we pay with nothing more than electronic representations of intangibles. How long before electronic representation is actually the medium (deriving its meaning from nothing other than data)?
Regardless of technology indicators today’s value is largely held in characteristics of areas people look to deposit their money in. Characteristics people care about are 1) level of consumption, 2) areas with political stability, 3) areas with strong legal protections for private asset ownership, and 5) lack of corruption.
The United States fits the bill in all of those categories. More importantly the United States is the largest liquidity market in the world (another key indicator). The only other established market for deep liquidity (in my personal opinion) is Great Britain.
I’m using Great Britain because we don’t know about BEXIT’s conclusion. Great Britain (currently the United Kingdom) has infrastructure that is over 500 years old. The queen is very wealthy. The queen’s support for her country does not falter. Any country with a sovereign of immeasurable wealth will find ways to prop up its financial system. This is a common sense observation that calls attention (another indicator).
The United States has strong trade relations with Great Britain. Both have deep banking partnerships to facilitate primary market exchange. The likelihood this system will become imbalanced is small.
THE US PLACE IN A FUTURE OF EMERGING MARKETS
China, India, Singapore and Malaysia have big roles to play in the future of our economies. Great Britain will have high participation as a central liquidity hub. Germany will continue to be seen as a manufacturer of quality machines. France’s agriculture feeds most of Europe. The United States will enter into further treaties (despite the temporary trump administration) to preserve these relationships.
The United States will remain the central hub of consumption. The United States economy stimulates foreign economies with its endless appetite for consumer goods. This may play to its loss of standing over the next fifty to seventy five years but will not erase its indispensability.
Aside from established markets, investor access, intellectual property protection laws and other advantages to its free market system — the United States has built a military arsenal to be the de facto police state.
The interest of the United States is stability. I will illustrate this point below.
It is in the interest of all parties to preserve the system to bring stability. All parties are concerned with preservation. World wars are largely avoided due to mutual acceptance of mutual destruction. The role such a large US nuclear arsenal plays cannot be overlooked. Pakistan retains its standing in the world due to its nuclear arsenal. Despite Pakistan’s political complications no country invades. No country seeks to overthrow the Pakistan regime.
All one has to do to test this theory is to look at the hypocritical support of Saudi Arabia by the United States. Despite claims for human rights violations and allegations for numerous atrocities committed within the state — no US administration has been adversarial.
The reason is due to US dependence on petroleum products, the need for market stability and the role Saudi Arabia has in stabilizing the region.
The US is concerned with stability not actual political agendas (although one can argue stability is a political agenda).
Quite frankly, unless a deep state conspiracy is enacted, Pakistan will most likely perpetually exist until some way of containing nuclear effects to the planet is invented. Similar unless Saudi Arabia loses its influence in fixing oil prices they will remain. The US has a very big role to play for some time to come in preserving all these roles.
IN CLOSING SAVE YOUR MONEY SAVE YOUR VALUE
Keep your US Dollars. Although the US Dollar may devalue over time — it will still be the safest medium of exchange for many years to come. The US dollar foreign reserves are nearly tripling for other countries’ foreign reserves. The crypto currency dream has been reduced to another security and Facebook’s crypto aspiration has a dismal outlook (at best). Mark Zuckerberg recently stated there was a strong chance it might not even happen.
No US administration wants its currency threatened. No foreign administration (with exception of China, Russia, Iran & maybe Turkey) want the US Currency threatened. As long as stability remains a key focus for most the world the US Dollar will remain strong. All third parties interested in the US dollar demise have a long path ahead of them. This might be a concern for my grand children but not for my generation.
To your knowledge success!
About Christopher: Christopher Knight Lopez is a Professional Entrepreneur. Christopher has opened over 7 businesses in his 14-year career. Christopher’s purpose is to take advantage of various market-driven opportunities. Christopher is a certified Master Project Manager (MPM), Master Financial Planner (MFP) and Accredited Financial Analyst (AFA). Christopher previously held his Series 65 securities license. Christopher also has his General Lines — Life, Accident, Health & HMO. Christopher has managed a combined 286mm USD in reported Assets Under Management & Assets Under Advisement. Christopher has work experience in 29 countries, raised over 50mm USD for various businesses, and grossed over 7.5mm in his personal career. Christopher worked in the highly technical industries of: biotechnology, finance, securities, manufacturing, real estate, and residential mortgages. Christopher is a United States Air Force Veteran. Christopher has a passion for family, competitive sports, fishing, martial arts and advocacy for entrepreneurs. Christopher provides self-help classes for up-and-coming entrepreneurs. Christopher’s passion to mentor comes from belief that entrepreneurs need guidance. The world is full of conflicting information about entrepreneur identity. See more at www.christopherklopez.com