Decoding De-Dollarization: Why the Dollar is King & Why Its Reign Might Be Over

We’ve seen an influx of questions from clients regarding the process of de-dollarization, what it means, and how it impacts investors. This industry-specific term is making its way into the mainstream as the dollar’s hegemony falters.

Watch this week’s The Gold Spot to hear Scottsdale Bullion & Coin Sr. Precious Metals Advisor Steve Rand & Precious Metals Advisor Joe Elkjer explain why the dollar is the world reserve currency, why countries increasingly view it as a threat, and how investors can protect against the ensuing fallout.

Why is the Dollar King?

The US dollar has been the bedrock of the world economy for nearly 80 years, but most investors don’t understand how the greenback has earned or maintained its prominence.

Following the aftermath of WWII, the booming dollar overtook the British pound as the world reserve currency. The combination of a strong economy and massive gold stockpiles preserved the dollar’s leading role until the government severed the currency’s connection to gold in 1971.

To uphold the dollar’s reign, President Nixon struck a deal with Saudi Arabia to conduct oil deals in the US dollar. This agreement ushered in the era of the petrodollar, which has been responsible for maintaining the dollar’s dominance ever since. Every day, there are billions of dollars worth of USD floating around international markets since every single country relies on petrol to function.

The Petrodollar: A Retrospective

How To Prepare For The Impending Dollar Failure

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Unfortunately, this loose foundation is starting to give way as Saudi Arabia considers accepting other currencies for energy transactions. This shift and an abundance of domestic fiscal blunders have countries looking elsewhere for economic grounding. The BRICS nations are generating a lot of buzz with their potential gold-backed BRICS currency. Over 40 nations are requesting to join, and even more, are eager to use the alternative currency.

The Dollar No Longer Safe Haven

Throughout the dollar’s tenure as the reserve currency, it has maintained a strong reputation as a stable, secure, and predictable asset. These characteristics made the greenback a safe haven for individuals, companies, and central banks looking for protection against market volatility and uncertainty.

Within the past few years alone, the world’s confidence in the dollar has significantly eroded. Countries now view the dollar as an unnecessary risk, unwanted liability, or feared weapon – especially in the case of China and Russia. This shift away from the dollar will have severe economic blowback at home.

In the past, upwards of 90% of the world’s reserves were held in USD. In 2022, that percentage is down to 58%, according to the IMF. This staggering difference illustrates the pace at which the world seeks an economic order free of dollar dominance and the rapid speed at which it’s occurring.

What Happens When the Dollar Declines?

It’s no fluke that the US has been able to rack up the most significant debt in human history without many consequences. That’s because the high demand for USD has made borrowing cheap, easy, and convenient. The process of de-dollarization makes it harder to run enormous deficits, which is how nearly every facet of the US economy has run so successfully over the past few decades.

If the dollar were to lose its throne, the American people could fall into a modern-day depression. Inflation might reach astronomical levels like we’ve never experienced, the stock market would crumble as companies falter, and the cost of living would skyrocket.

👉 Suggested Reading: What to Own if the Dollar Collapses? (Hint: Not Paper Assets!)

Gold Has Always Been the Standard

There’s rarely a clean transition from the ruling economic system to the successive regime, creating uncertainty for investors who want to protect their wealth. Luckily, watching the investments of major players can give us a glimpse into the minds of the most educated investors.

For example, around the world, central banks have been buying gold in record amounts over the past few years. In the first quarter of 2023, governments boosted their reserves by 228 tonnes of gold which is 38% more than the previous record set a decade ago. The world is turning to this precious metal for stability in a time of widespread economic uncertainty.

Stay Informed to Stay Protected

The world of currency is undergoing radical changes, making it imperative for investors to remain informed. Knowledge is the foundation of a sound investment strategy, but keeping track of everything going on in the global economy can be challenging. We’ve put together a free CBDC report and Petrodollar report so you can stay current on these crucial developments.