It seems that everywhere you look these days, stories are circulating online and on various cable news outlets touting the inevitable decline of the US dollar. This type of commentary is not new. Quite the contrary, I have seen articles with similar headlines for at least the last 20 years.
The general assumption goes something like this… As China continues to grow and eventually surpasses the US as the world’s largest economy, more people will trade using the Chinese Yuan than the US dollar. There are also narratives that China’s alliances with countries such as Russia, Iran, and Saudi Arabia could give rise to alternative currencies that will eventually knock the dollar off its throne.
Let’s begin by looking at the history of global reserve currencies since 1450. As you can see in the chart below from US Global Investors, six different countries have been home to the global reserve currency over the last 550+ years.
A few things are important to note in the chart above. First, each of the previous reigns lasted anywhere from 80 to 110 years. Secondly, in the last 300 years, two other countries previously held the title, France and the United Kingdom. They were each subsequently dethroned. However, they did not fall off the face of the earth. These countries and their economies, even though they went through initial economic downturns and restructurings, are alive and well today.
The third data point is that each of them was eventually replaced with a larger and stronger alternative currency. As you can see below, in the calendar year 2000, the US dollar accounted for approximately 70% of all central bank reserves. More than 20 years later, and despite numerous headlines hyping the dollar’s decline, it now accounts for just under 60% of these reserves.
The second closest competitor is the Euro, which only accounts for approximately 20%. In fact, if you combined the total Euro, Yen, Pound, and Yuan reserves, they would still make up less than half of the US dollar total. Here is the most important thing to remember. You can’t replace something with nothing. In order for the dollar to be dethroned, you would have to have a bigger, better, and stronger currency. This alternative does not exist today.
This is not to say that something like this could not happen over time. However, it is not likely to happen anytime soon. This is a very important topic, which is why we are including links to two different articles that will help give you further insights on the questions people are asking today.
The first is an article dated April 12th entitled US Dollar Discussions from our friend Gene Goldman, Chief Investment Officer of Cetera Financial Group. Gene is a good friend and a trusted advisor. You may recognize him from his numerous appearances on national news networks, and we have shared his thoughts with you from time to time.
The second link is to an article written by Ian Bremmer, President of Eurasia Group. He is an American political scientist and author, who oversees a global political risk research and consulting firm. His article entitled The Dollar is Dead, Long Live the Dollar was published on April 5th. Ian is very smart, and I have had the opportunity to attend a number of his workshops over the years. He provides a more detailed and nuanced discussion for those of you wishing to dive further into this topic.
The CFPs of Impel Wealth Management continue to address topics that you ask us regularly in our meetings. As this is a question that has come up numerous times over the last few months, we wanted to provide you with our thoughts, as well as some further resources to help you put this in perspective. We trust this gives you additional ways to think about this issue as we continue “Moving Life Forward”.
© 2023 Jesse Hurst
The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.