Hard Evidence That Confidence in The Dollar Is Cracking
The comments below are an edited and abridged synopsis of an article by Simon Black
It is becoming clear that the world is losing faith in the US dollar, and rapidly turning to alternatives. And that’s a huge deal for the US.
For nearly eight decades, the US economy and US government have enjoyed the benefits of the dollar being the world’s reserve currency.
This means that nearly every government, central bank, commercial bank and large corporation in the world holds US dollars. Foreign companies use the dollar to trade with one another. Foreign governments and corporations often issue bonds in US dollars.
And most of the world’s major commodities, including oil, are priced and traded in US dollars.
This has been of enormous benefit to the US. Every other country in the world that engages in international trade and commerce has to hold US dollars, which means that foreign institutions end up parking vast sums of money in the US financial system.
And that money creates additional capital that gets put to work to grow the US economy.
So, rather than invest their own money to grow their own economies, foreign governments and institutions are essentially forced to invest a big part of their savings for the exclusive benefit of the US economy simply because they need access to the world’s reserve currency.
Black explains why the dollar’s reserve currency dominance is by no means written in stone. It’s not the first global reserve currency, he says, and it won’t be the last.