USD Reserve StatusThere has been IMHO much hype about the reserve status of the USD.
The SIZE and LIQUIDITY of our financial markets ( Stocks and Futures) is gigantic compare to oil (or any one market) and traded in USD. Doesn’t that insure there will always be a large demand for USD?
Comments please.
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There has been a lot of hype and fear-mongering, but filtering that out, the possibility (even probability) of the dollar losing it’s world reserve currency status remains.
I don’t think that size and liquidity of markets matter as much as the fundamental strength and health of the government, economy, and financial system which is backing a currency. You many be more confident about the U.S. in those regards than I am.
The global currency war has really heated up this month, and the dollar is strong primarily because the Federal Reserve dropped out of that race-to-the bottom – temporarily.
To feel secure no matter what happens, just do what the very rich have always done, and keep a decent percentage of your money in hard assets as insurance against sudden downturns. It doesn’t have to be in the form of precious metals, but because the billions of people who reside on the other side of the planet still value them so much and continue to accumulate them, that alone makes them a pretty safe bet as a store of value no matter what happens here.
Thanks Patricia…Been moving and thinking about what you said. I would agree with most of your comments except for the importance of liquidity.
When you want to get out liquid markets usually have the smallest bid ask spread and volume which gives better odds of getting a fair price.
Health of the Government is in the eyes of the beholder. Free markets, favorable laws and liquidity are ,IMHO, what will drive the continued demand for the USD.
Jeff
The Chinese and Russians are building an impressive stable of trade deals with important countries that are based on direct swaps of currencies, bypassing the dollar. The dollars that are sloshing around the world as reserves will have less and less actual utility, so its possible that there will be an erosion as a reserve currency that does not need to be announced by anyone.
What would you do If you were a Chinese decision maker and you had billions of US dollars in your central bank ? I know what I would do, and it’s what the Chinese are actually doing…I’d buy up as many hard assets as I could, including attractive western equities, while the dollars were still worth something…I’d buy gold…I’d buy real estate…and I’d encourage a free market for my citizens to load up on gold and silver to their heart’s content. I might also send a bunch of my dollars to Russia as payment for the commodities I needed…they certainly need the foreign currency…and to really kick down the door I’d move to a gold standard for the yuan.
I agree, buy hard assets and invest in commodities and infrastructure that support food water and other necessities of life. Jim Richards did an interview with Moneymappress and discusses the fall of the dollar soon. Has anyone seen that? What was your take away?
Sensible rationale for maintaining some kind of purchasing power over decades by investing in such “hard” necessities, and I allocate some of my portfolio to this kind of strategy (one reason why my personal portfolio did pretty poorly last year)… but being sensible doesn’t mean it will do better than the market, or that such a strategy can’t be terrible for many years in a row. It’s easy for a capital-protecting billionaire to say and implement, and harder to follow for a 50 year old who needs an 8-10% annual return to build a retirement fund.