The US dollar is the preferred currency around the world, and it has been for many years, but… it’s been an increasingly troubling and bumpy road for the dollar lately. So much so, that some experts are predicting that the pressures facing the dollar could drive its value down against other world currencies – which could lead to the emergence of a new preferred currency for global transactions.
All while the Federal Reserve continues to devalue the US dollar more and more, which we all know actually means ‘printing more money.’
However, the strategy of creating more money is dependent upon a future of work and productivity. So, while US debt is in excess of 26 trillion dollars, the FED keeps issuing securities to pay for bailout programs and everything else it needs. This type of borrowing against future productivity is dependent on a future of growth in a continually thriving economy. Not to mention the fact that, US GDP has plummeted to a staggering 32.9 percent. A loss of this magnitude hasn’t been seen since the Great Depression, yet the stock market continues to soar.
A prolonged negative GDP erodes an economy’s credit worthiness and credibility around the world.
Such a devaluation of a currency leaves its population impoverished first, as the value of goods and services no longer stack up. And it won’t just stop there. All production anywhere is a consequence of global cooperation among producers. Producers who could seek payment in a currency other than their own – making matters worse. Did you know a third of US debt is owned by China and Japan? With China in particular… what’s to keep it from cashing in its American debt chips to save its own economy? A real and ongoing threat to the dollar.
As other countries also suffer an economic downturn brought about by the closing down of those economies, it’s safe to assume that they will look to other means of generating value for their production. This may result in turning their own fiat currencies and reducing their imports away from foreign countries. All of which could compound problems for the dollar.
Developed economies implemented a cashless payment infrastructure based primarily on credit cards several decades ago, but in recent years, such legacy structures have suddenly become a burden. The “Western” markets up until now, have been much slower to adopt new payment solutions than growing economies like China, India, or Eastern Europe. A large share of the population in the developing economies of Asia, Africa, and Latin America was also underbanked until the rise of mobile payment and wallet innovations that completely rely on accessible mobile technology
China’s efforts to release a ‘gold-backed’ cryptocurrency pegged to the Yuan becomes a shiny new option, and a new alternative to transactions. The unregulated ‘wild west’ world of cryptocurrencies may just turn the majority toward a gold-back and regulated government version. Even if that government is China. The dollar-ditch could also be met with the US stalling transactions or imposing bank regulations. Meaning, people with capital may turn to cryptocurrencies, which will drive the price up for sure. But there is already 151 billion dollars in cryptocurrency available. And after all, the US is not the only consumer in the global store. As such, it may not be able to maintain the rules of transactions when there are more viable options out there.
So, if the Chinese really are getting ready to launch a gold-backed cryptocurrency, it could cause a fatal blow to the US dollar and create a global monetary paradigm shift. If the rumors are true, then the only thing holding China back from proceeding with their plans is the American consumerism of their goods, which has been slowed in trade wars and the global crisis.
Or is it…?
Back in June of 2019, China was facing a fatal blow of their own. As per a report by Caixin, which is a Chinese media group based in Beijing known for investigative journalism, China is at the center of the discovery of the biggest gold counterfeiting scandal in human history. A whopping 83 tons of purportedly pure gold bars used as collateral in what is known as the Kingold affair, which had been used to secure bank loans, better known as “ghost collateral” – turned out to be nothing but gilded copper.
It was and still is, China’s very own Lehman Brothers moment. But will it matter?
Right now – all eyes are distracted by an American showdown.
The US has never seen such deep divisions in our lifetime. Only one day to go for the elections and it is clearly the most divisive and contentious election in years. One party defines the other as evil, and one party defines the other as totalitarian. Maybe they will be fine, or maybe there will be more rioting in the streets – we don’t know. What the rest of the world has been witnessing however, is that America is too tumultuous to risk investing in, while China hides in the shadows waiting to take advantage of the vulnerability of its prey.
Every administration brings with it, dramatic policy shifts. Shifts that ripple across economies. And after a brutal third quarter and hemorrhaging fourth, the last thing America needed was the rest of the world backing away from investing or making deals until all the ripples settled. They expected all hands on deck as they marched toward recovery!
So, could we really be entering into a world where the Green-back is no longer king? As the rest of the world suffers similar economic declines, some far more than others. Will they seek to recover in more confident transactional currencies like the British pound sterling or the Japanese Yen? That’s why the days and weeks following November 3rd, will be watched closely by people around the world, and may quickly determine the longevity of the US Dollar.
There is no doubt (despite a soaring stock market) that America is at the doorstep of a deepening recession with historically high unemployment, a slowing economy, and looming evictions.
That’s the reality!
The true perception of stability comes from the calm strength of confidence. But when a country’s citizens are pouring into the streets in protest – that confidence disappears. This could therefore lead many in quick succession to seek a financial foothold in another country’s currency, one that is perceived as calm, strong and confident.
If a massive currency U-turn happens in America, the Federal Reserve and President Donald Trump himself (no matter how brilliant he claims to be) may not be able to stop such an unprecedented exodus. Sadly, none of this points toward a bright future (if any) for the dollar if it happens, especially at a time when other currencies may appear to have more value on the global stage.
