“America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.”

Abraham Lincoln 

J.P. Morgan: We Believe The Dollar Could Lose Its Status As World's Reserve Currency

The rise of the U.S. dollar 

It is commonly perceived that the U.S. dollar overtook the Great British Pound (GBP) as the world’s international reserve currency with the signing of the Bretton Woods Agreements after World War II. The reality is that sterling’s value was eroded for many decades prior to Bretton Woods. The dollar’s rise to international prominence was fueled by the establishment of the Federal Reserve System a little over a century ago and U.S. economic emergence after World War I. 

The Federal Reserve System aided in the establishment of more mature capital markets and a nationally coordinated monetary policy, two important pillars of reserve-currency countries. 

Being the world’s unit of account has given the United States what former French Finance Minister Valery d’Estaing called an “exorbitant privilege” by being able to purchase imports and issue debt in its own currency and run persistent deficits "seemingly" without consequence.

 “You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.”

Abraham Lincoln

Dollar’s declining role already under way? 

Recent data on currency reserve holdings among global central banks suggests this shift may already be under way.  As a share of overall central bank reserves, the USD’s role has been declining ever since the Great Recession (see chart). The most recent central bank reserve flow data also suggests that for the first time since the euro’s introduction in 1999, central banks simultaneously sold dollars and bought euros.

 

Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it.

Given the persistent—and rising—deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold. As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other G10 currencies, currencies in Asia and GOLD!

 The late MIT economist Rudiger Dornbusch: 

'Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.'"

DYI:  The beginning of the beginning took place on August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, [$35 per ounce] thus completely abandoning the gold standard.    

The only way America would continue to have foreign nations fund our twin deficits – budget and trade imbalances – was/is through military intimidation.  Step out of line enough and your country will be attacked.  Libya and Iraq are prime examples who were in the process of recycling their excess oil money either into gold/silver [Libya] or in Euros [Iraq].  Both countries today are using U.S. dollars; also used as an example of intimidation by our State Department for other wayward nations.

Something happened on the way to the forum

(Intimidation doesn’t always work)

Countries such as Russia and China will no longer tolerate threats of intimidation; they have created their own non U.S. dollar platforms using gold and their own respective currencies.  Once established [with the bugs worked out] other countries within their sphere of influence will follow suit.  Countries such as Iran, Syria, along with India an up and coming nation with vast numbers of young people will eagerly move away from the dollar.

The beginning of the end has begun for the American dollar being the reserve currency for the world.  America will remain a massive country but her days are numbered where we can bend any nation on the planet to our will whether militarily or financially.  This will take place slowly at first but over time our monetary snow ball will gain speed till the day of crisis arrive at our feet in matter of seconds.  When that day comes it will most likely [history is my guide] event will be massive INFLATION.  The bills will come due marking the day when Congressmen will no longer be able to kick the can down the road postponing the day of reckoning.

DYI