Recently, I have been questioned several times about the USA dollar/currency possibly losing it’s reserve status – Surprised at first by the questions, but after digging deeper, understand the questions – there is a lot of talk on this.
A quick google search proves the visibility: 1 million + results
Will the USA lose it’s reserve status?
We believe not today, but possibly in the decades to come, it makes sense that the USA Dollar MAY not be as dominant:
Points and counter points for the argument —
- USA has too much debt – maybe, but most other countries of size do too now –
- Naysayers argue the government is not functioning well – maybe, but again, cleanest dirty shirt, plus we have the enviable economic growth many would die for
- Putin and China are trying to get together — see in your own search results – agree, the headline is scary, but VERY hard to believe an agreement, if even reached, would challenge the USA currency, especially in the near term — (see two points below for longer term issue)
- A global recession will open other avenues – in times of stress, even when the USA was the core problem, it was the go to currency — Naysayers would say, “This works until it doesn’t” — True, but for now and the distant future there are few other competing options
- As smaller countries mature, they may not need the USA currency as the “go to” standard currency — Ahhhh, now you have hit a chord, we think this is far out i.e. Decade or so, but possible and worth watching in the future AND the most likely outcome – For the record, this would be a competing or complimentary option in our mind, NOT a replacement — Just our thoughts !
We are not saying the currency will strengthen or weaken, only addressing the standard issue. So many factors affect the short-term movement of currencies we feel compelled to stay away from that prediction.
Hope you enjoyed our open chat to bring clarity to the subject!
Have a Great Day!
John A. Kvale CFA, CFP