For decades the US dollar has been the world’s reserve currency. That has afforded the US government a number of benefits, most especially the ability to create massive amounts of government debt that are readily purchased by investors and institutions around the world. But the dollar’s time as the world’s reserve currency may be coming to an end, as many countries are tiring of constantly having to use dollars on world markets. And recent actions by Russia may very well hasten the dollar’s ultimate demise.
The most important role for the dollar in world markets is in oil markets. Oil prices are almost universally denominated in dollars, and the world’s largest oil sellers will only take payment in dollars. That has helped to cement the dollar’s status as the world’s reserve currency. But an increasing number of countries are trying to break the dollar’s dominance by accepting other currencies for oil payments.
Russian oil behemoth Rosneft has switched away from using the dollar, instead favoring the use of euros in exporting oil. That’s an important switch, as Russia remains one of the world’s top oil producers and is becoming an increasingly important partner with OPEC.
Ditching the dollar also helps Rosneft get around any potential implications from US sanctions. The US government has increasingly weaponized the US dollar and the US financial system, particularly when it comes to sanctioning Iran. It frequently cuts off sanction targets from the US financial system, which means cutting those targets off from any markets that use the US dollar.
But as countries and companies switch from the dollar to the euro, they largely eliminate their need to rely on the US financial system, and US bank subsidiaries or clearinghouses. They cut the US financial system out of the loop completely. As that becomes more widespread, particularly as US sanctions increase in severity, that will result in the US financial system being cut out of more and more international trade, thus diminishing the dollar’s importance in world markets.
The dollar’s demise won’t come anytime soon, but its demise will be all but inevitable as the dollar is replaced with euros or yuan on international markets. There will eventually come a time when the dollar is no longer the world’s reserve currency, and when that happens US investors and consumers will receive a rough wake-up call.
When the dollar loses its reserve currency status, assets that are denominated in dollars will lose significant amounts of value. Stocks and bonds that are denominated in dollars will see their prices plummet. Only by investing in gold will investors be able to secure the value of their investments.
Because gold is in great demand internationally, it isn’t dependent on the strength of a single currency such as the dollar for its value. It retains its value year after year, keeping investors’ assets safe and secure. Gold has withstood the test of time and seen currency after currency go by the wayside. When the dollar finally loses its reserve currency status, gold will still be there safeguarding investors’ wealth for a long time to come.
This article was originally posted on Goldco.
