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Is the U.S.'s Reserve Currency Status in Jeopardy?
It's been decades since the U.S. dollar became the world's reserve currency. It was 1944 to be exact when the Bretton Woods Agreement declared that the world's currencies would no longer be linked to gold but, instead, pegged to the U.S. dollar...which at the time was linked to gold. Since then, the dollar has been accepted throughout the world for the settlement of international trade accounts among nations.
The power that the U.S. dollar has held as a result cannot be understated.
And it's this power that's allowed the U.S. to lead in many respects. The accumulation of high levels of debt being one.
I addressed the consequences of America's debt in this piece, addressing the downsides of continuing to hold, and accrue, large amounts of debt. Inflation is one of those downsides...sound familiar? Another, more drastic consequence is the loss of reserve currency altogether.
Losing the reserve currency status would be a significant blow to both America's standing and economy. And something many likely don't consider a real threat.
However, an article titled, "World Dollar Hegemony is Ending (And That May Be A Good Thing)" by Patrick Barron discusses how the world's economies may be seeing a transition, with other countries and cooperatives making a move to replace the dollar's long-held status.
Even I, someone who follows these types of issues a bit more than most, wasn't aware of all of the competitors that are springing up. According to Barron...
"There are several organizations that are cooperating to develop an alternative to the dollar for the settlement of international trade. The BRICS (Brazil, Russia, India, China and South Africa), the Shanghai Cooperation Organisation (SCO), and the Eurasian Economic Union have formed a working group to develop a commodity based medium of exchange to replace the dollar as the premier means for the settlement of international trade. Goldmoney’s Alasdair Macleod has written extensively about this project. More countries—especially countries currently using the dollar, such as Saudi Arabia—have announced their intensions to join the project. More, many more, will follow Saudi Arabia."
You can read the full article at this link.
One of the main reasons America has been able to spend without consideration of its revenue and debt levels is because of its reserve currency status. If that changes...well, let's just say it's not a situation we want to find ourselves in.