5 Reasons Why The USD Will Not Lose Its Reserve Status

in LeoFinance6 months ago

We hear a lot of talk about the US Dollar crashing. There is also, usually from the same people, that it will be replaced as the reserve currency. Of course, these statements come as the dollar forges higher.

In this article we will lay out simply the 5 reasons why the USD is not going to lose it reserve status, at least not anytime soon.


1. $150 Trillion In Global Debt

Do you know how much $150 trillion is? That is a lot of money. We have roughly $300 trillion in global debt, with almost half of it denominated in US Dollars. This means that repayment is contractually obligated to take place in USD.

The key piece here is that anyone who has this debt is going to have to acquire dollars to make their payments. There is no way around this.

Understanding this means we have to apply simple supply and demand to the equation to figure out what is going to happen. Of course, there will be defaults but even if 1/3 of it is written off, that is still $100 trillion in debt that has to be paid back in USD.

Another thing to keep in mind is the fact that more debt is being issued on a daily basis. The drive to keep this debt fueled insanity going is not going to stop. This starts, of course, with the US Congress that is showing no signs of letting up on the creation of securities to sell.

2. Do You Want To Sell Your Stuff

Do you know what country has the largest economy? The United States. Want to guess what economy has the largest percentage of consumption? Again, the United States. Finally, do you know which country runs up the largest trade deficit? Drum roll please. The United States.

What all of this means is that everyone from small individual shops to countries want to access the United States market. In other words, everyone wants to sell their stuff to Americans.

Here is the bottom line: if you want to sell your stuff to the United States, you are going to get paid in USD. It is really that simple.

3. Reserves

Distribution is something vital. To act as a reserve currency, it needs to be available. That means banks, institutions, and individuals need access to it. This is the foundation of the financial system.

Here is where most currencies have an issue. They are not help globally as reserves. In fact, the Chinese will not even open their currency up due to the fact they would face a flight of capital. A currency cannot serve as the reserve if it is used for capital control.

This is why the idea of the Petrodollar really misses the point. It doesn't have anything to do with oil. If that was the case, the Petroyuan would actually have amounted to something.

Were you even aware there was such a thing?

So the idea the world is going to pay for goods and services in anything other than USD is amiss. The USD is the thing that everyone, especially the banks, have.

4. Trust

The international financial system depends upon on thing: trust.

What does the USD have that most do not? It was not nuked over the last century. One can use a dollar from 1920 or a 2020 as payment. It makes no difference. Try doing that with the Pound or Yen.

There is a reason the Japanese weren't allowed to coin money for 500 years.

Also, if we think back before the formation of the EU, we remember a time when, each decade, at least one country blew up its currency. It was a regular event.

As much as people complain about the USD, it just keeps showing up.

5. Unit Of Account

The final reason that we will cover is the fact that the USD is the unit of account. What does this mean?

Simply that we have 4 generations of people on the planet, most of whom understand what a dollar is. They have no problem thinking in these terms. How many dollars equate to a barrel of oil? This is something we know. We can also figure it based upon many other commodities and products. Anyone who exports to the US knows exactly how much a dollar is worth.

In other words, this is ingrained in people all over the world. How many people outside of Japan know how many YEN for a barrel of oil? For a cheeseburger? For anything? Not too many.

It is a bit off topic but it is ironic that people say how stablecoins are a threat to the USD. If anything, because of the unit of account, even those that are backed by something else are reaffirming the position of the USD.

We know how hard it is to change the minds of people. The fact we are very familiar with the dollar means that it people will keep embracing it. They are not going to switch their thinking easily.

Since the path of least resistance is the one they usually take, it is only to the benefit of the USD.

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If that was the case, the Petroyuan would actually have amounted to something.
Were you even aware there was such a thing?

Hah, no I wasn't. This is the first time I ever heard about that.

It's insanity to think that the USD is going anywhere anytime soon.

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The USD is never going to disappear until all the other fiats disappear. I think it will take decades before any other possible currency takes its place. We saw the rest of the world go negative but the US did not and that is why there is a lot of confidence in the dollar.

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We will likely reach a post monetary system by then. The USD is probably the last reserve currency we will have.

The financial and economic system in a half century will likely be much different than it is today.

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Very good and to-the-point article.

Many try to say that USD will implode with no other information other than they know it's corrupt and corruption eventually implodes. The fall of Rome required lifetimes to play out.

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Not only that, they actually lack the understanding of how money is even made.

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They are very good reasons for the USD not to lose its value of the 5 that you tell us in your publication. For me, TRUST is very important since we all would like to have them, but very few are lucky enough to possess them.

I've heard many conspiracy theories about America and the US dollar going down, but I can't believe it. But would I like it to be? Yup. Because I am disturbed by America's use of its economic power to act as the father of the world.

Well America is going to have its challenges, there is no doubt about that. It is not all sunshine and paradise.

That said, the US will be just fine. It has what it needs to still be solid in a deglobalized world. This is the point most miss.

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The dollar is loosing trust every year that goes by. Now we have China and India the biggest population centers using other then the dollar to buy oil. Saudi Arabia now making plans to use multiple currencies. I see the dollar as a sure thing not to be the reserve within a decade or two. I think these arguments make less sense then ever b4. In 1920 it was a totally different dollar that was Gold backed and redeemable. Now fiat that’s printed to infinity. Coins were gold and silver then and now worthless bade metals which even are worthy more then face value for pennies and nickels. I strongly disagree with much here. Anyone wanna make a friendly wager?

Bang, I did it again... I just rehived your post!
Week 100 of my contest just started...you can now check the winners of the previous week!

LOL more of the same foolishness.

What was the average household income in 2013 compared to today?

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150T, jeez, I read that there's about 100T liquid USD around the globe. Do you think that might be accurate?

No I do not. The US dollar supply is lacking globally. We are in a liquidity crisis. That is why many countries are having to sell their UST, to get USD.

That is one of the reasons (not the only one) for slowing global growth over the last few decades. Debt levels also play into this.

We actually need more USD out there something most miss since they believe the Fed actually prints dollars.

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5 great, inarguable points. But there is more to the story... Much More!
There were many events in the past 6+ years that are not referenced in your article, Task, but far be it from me to assume you are unaware of these.

  1. There is actually a whole list of WRC's of which the U$D is #1 at approximately 5/8 the total. I believe this is to facilitate the other "majors" being convertible into U$D. Some are the GBPound, Euro, Japanese Yen, Swiss and German.
  2. In 2015, I read about inclusion (backed up by articles on the IMF website) of the Chinese Yuan into the WRC currency list... SPECULATION (or Chinese disinformation?) was that all existing WRC partners were to be reduced by HALF, and the Yuan was to be installed as the NEW PRIME WRC at half the Pie. This obviously did not happen. The IMF cited a couple of critical "stress tests" that were not met by the Chinese.
  3. Subsequent to this, I read on the IMF site, the plan was shifting to adding the Chinese Yuan to the SDR or "Special Drawing Rights" basket of currencies. This included a similar mix as the WRC, with slightly different ratios. I could not find any of the earlier references to the WRC discussion I had seen before.

I believe all of this to be true, I have seen it all with my own eyes. I also hae seen evidence that the IMF has concrete plans for worldwide crypto. It fits the description EXACTLY but instead of decentralized ledger, they call it Distributed Ledger. I sure hope your prediction that Globalism is DEAD comes true, in spades.

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I think it’s clear the dollar will not be the main world reserve currency for much longer. The dollar was gold until 1933, it was still gold for nations until 1971 and here we are 50 years into a totally fiat system and it’s looking weaker then ever. There’s a clear war on cash that is slowly being lost. The example of using the same dollar in 1920 as 2020 works today but there’s no chance it’s the case in the next decades. The government and central bank admittedly want a new digital dollar that will be different. I would bet anything the dollar is not the reserve current past 2030 or 2040 at latest. Money printing fiat to Infinity is getting worse every decade snd it’s on its last legs as reserve currency. Fiat currency never lasts long. The dollar just breaking 50 years since removing any sliver of gold standard shows it’s winding down. In 1920 we could redeem dollars for gold or silver at every bank. It’s certainly very different. And anyone who spends a 1920 dollar will get looked at funny most the time and should keep the bill as a collection item.

Lol, the dollar will be here for a (very) long while. The bigger picture here is co-existing with bitcoin and other reserve assets. Anything bigger than this is being grossly over ambitious.