US Dollar Collapse Predictions: The Dollar is on its way out
- US Dollar Collapse Predictions: Bretton Woods and Petrodollar system history
- US Dollar Collapse Predictions: Russian Sanctions & its implications
- US Dollar Collapse Predictions: The Morality of Freezing Central Bank’s Reserves
- US Dollar Collapse Predictions: Foreigners have been selling US Treasuries
- US Dollar Collapse Predictions: Could the Chinese Yuan replace the Dollar?
- US Dollar Collapse Predictions: Gold and Bitcoin to replace US Dollar?
- US Dollar Collapse Predictions: Epilogue
Now if commodity rich nations such as Saudi Arabia and Russia suddenly decide to not use the dollar for global trade, then the trillion-dollar questions is that what would be the next global reserve currency? Looking back at history of over the past few centuries, one has seen that the global reserve currency has changed hands every ~80-100 years. The dollar is nearing the 80-year mark also so a change of the guard in the next few years would not mean a deviation from the historical norm.
US Dollar Collapse Predictions: Epilogue
The recent events have brought into focus the pitfalls of a reserve currency where other nations can’t control their own reserves and hence their own economic destiny. Once friendly nations could in future turn on one another leading to sanctions on the smaller nation and/or it being cut off from the global economic system. A bigger nation could use the threat of sanctions to “mold the behavior” of a smaller state to its own liking. This has brought into focus neutral assets that are harder to sanction, block and seize such as Gold and Bitcoin. Once derided as flights of fantasy of “gold bugs” and “bitcoin maxis” a transition to them being used to settle cross border payments does not seem as outlandish as just a few months ago.
Russia and even other states might opt out of the current system by in the future explicitly denominating a barrel of oil in ounces of gold or a cubic foot of natural gas in Satoshi’s (i.e., smaller unit of Bitcoin). Given the current commodity price spikes many nations (unless they diversify quickly to other sources which takes some time and cost) might be forced to pay Russia by these new mechanisms due to the lack of choices. [i.e forced to the new payment system “kicking and screaming” vs gradually adopting it voluntarily]
This does not mean that the US dollar will lose its reserve assets tomorrow, but it is on the way out. Like on the geopolitical front as the world moves from a unipolar American to a multipolar world there could be something similar in the economic sphere where we could have multiple reserve currencies operating at the same time!
Legendary investor and billionaire Stanley Druckenmiller in an interview last summer said that he does not expect dollar to be the reserve asset within 15 years. The 2020’s decade has been one of massive upheaval with all sorts of problems: pandemic, supply chain issues, massive central bank printing, inflation, geopolitical tensions, great power rivalry, war, commodity price shocks etc. Given the events of the past couple of years in this decade it would be hard to say what the future holds in terms of the next reserve currency be it Gold or Bitcoin or something else but it would not be surprising that the if the dollar does not have global reserve currency status by end of this decade.