World Reserve Currency Breakdown: Abandoning the Dollar Standard
Today I’d like to alert you to what is happening to the dollar’s role on the world stage.
But first, the backstory:
In more sensible times, back before trillion-dollar deficits and a national debt that runs to fourteen places (think about that!), the US was on a gold standard.
Now the US and, for all practical purposes, the world is on a dollar standard. It is a monetary scheme that evolved after World War II under which the nations of the world and their central banks were persuaded to hold their currency reserves in dollars instead of gold.
It is an arrangement that has made the dollar more valuable than it otherwise would be. It has also subsidized the US government’s debt. As it comes apart the value, the purchasing power of the dollar, will suffer.
This post-War system was sold largely as a convenience. “Don’t worry,” the world was told. “You can take trust these dollars since you will be able to exchange them for the underlying gold anytime at all.”
That promise was broken long before many of our clients were even born! The particulars of this structure, with the dollar as the world’s reserve currency, have changed over the years, but it has been given enough international duct tape and secret money rigging for the whole rickety system to have survived.
Now the system is beginning to fly apart. Two examples that you should understand are very threatening to the dollar and its value.
First, the central banks of the world have substantial holdings of dollar. We have warned you even recently about our vulnerability to China’s official holdings of dollar bonds. What is little known is that, until recently, even Russia was a major creditor of the US. But with all the US sanctions targeted at it, Russia decided at the end of last year to unwind its dollar holding.
It sold aggressively through the spring, unloading $90 billion in Treasury bonds altogether over the period. The bond sell-off spiked 10-year Treasury interest rates over 3 percent for the first time in years.
What has Russia been doing with the proceeds of its US Treasury bond sales?
Buying gold, of course.
Russia is not the only country beginning to view the dollar more as a cudgel to enforce US foreign policies, than as a neutral and reliable store of value.
Our second example, reported earlier this week, involves a decision by the three major European powers, Britain, Germany, and France, to join in an agreement with Russia and China to circumvent US sanctions and continue to buy Iranian oil. The parties announced a new vehicle that allows them to bypass the US controlled and dollar standard international payment system.
Such defiance of the US would have been unthinkable in the past. Unthinkable.
WHAT THIS MEANS FOR INVESTORS: What I have described for you are crucial developments that aren’t covered and explained on the evening news. But they will have more impact on your standard of living than most of the stories you see. Both of these developments foretell the crack-up of the dollar’s privileged role in the world. They foretell the end of the post-War system that has artificially subsidized the dollar, giving it – and you – more purchasing power than you would otherwise have.
As the countries of the world look for a time-tested currency reserve that is not subject to political manipulation, they will find only gold.
We don’t know the dates and the times that these events will unfold, but they are underway now and they will accelerate as at first a few countries and then more diversify out of dollars and into gold.
We recommend you beat them to the punch by acquiring gold now, before the inevitable stampede.
As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at 602-955-6500 or toll-free at 877-354-4040.