JPMorgan: We Believe The Dollar Could Lose Its Status As World’s Reserve Currency

The comments below are an edited and abridged synopsis of an article by Tyler Durden

Eight years ago, JPMorgan created a chart that showed that reserve currencies don’t last forever, and that, in the not-too-distant future, the US dollar would lose its status as such.

JPMorgan: We Believe The Dollar Could Lose Its Status As World’s Reserve Currency | BullionBuzz
Health insurance application form for US Dollar with stethoscope and calculator

The topic of reserve currency longevity status is once again making the news, and JPMorgan’s Private Bank asks in this month’s investment strategy note whether the dollar’s exorbitant privilege is coming to an end.

Why is JPM, having created the above-noted iconic chart, not only worried that the dollar’s reserve status may be coming to an end, but states that “we believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.”

Up for discussion: Is the dollar’s exorbitant privilege coming to an end; the rise of the dollar; the shifting centre; China regaining its status as a global superpower; earnings in China are becoming more balanced; is the dollar’s declining role already under way; and trade wars have long-term consequences.

Durden believes we are at an important juncture. On a real basis, the US dollar stands more than 10% above its long-term average and, on a nominal basis, has actually been trending lower for 50 years.

Given the persistent—and rising—deficits in the US (in both fiscal and trade), he believes the dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold. Many portfolios have far more US dollar exposure than is prudent. At this stage of the economic cycle, this exposure should be more diversified. In many cases, a higher weighting should be on other G10 currencies, currencies in Asia and gold.

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