For the US dollar, it has been the best of times and the worst of times. Over the last few years, the greenback has ironically been as good as gold in global financial markets. During times of worldwide turmoil, from economic devastation to military conflicts, governments, central banks, and investors have sought shelter in the buck. At the same time, it has not been sunshine and lollipops because the dollar is facing a bombardment of threats, be it de-dollarization or diversification.
Good, Bad, and Ugly for the Dollar
The International Monetary Fund (IMF) quietly released a new paper identifying the dollar’s dominance in the international reserve system while admitting that the buck “continues to cede ground to nontraditional currencies in global foreign exchange reserves.” Indeed, the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) shows that the dollar is the top currency of choice in the world economy, accounting for 58% of global reserves, down from 71% in 1999.
However, dollar hegemony has eroded in recent years because nations are making claims in other currencies. While officials would appear to lean into the euro and British pound sterling, the IMF noted that countries are adopting non-traditional options, such as the Chinese yuan and the Australian dollar. Digital technology has supported this shift, making it easier to purchase these currencies. The momentum will slow as the IMF believes that, for example, the yuan’s internationalization is showing “signs of stalling out” because of its depreciation in global forex markets.
IMF economists even dismissed the acceleration of gold accumulation by emerging market central banks. “Before making too much of this trend, however, it is important to recall that gold as a share of reserves still remains historically low,” the paper stated.
Ultimately, according to the IMF, the king dollar has not been dethroned, and it will take an army to commit regicide successfully. As Liberty Nation News has reported, the de-dollarization campaign is a long-term affair, and it could take decades before the greenback monarchy is in a pit of ashes. The fiat empire persists, and global players must decide the best of the worst. For now, the dollar is superior since it has seeped into bloodstreams everywhere since the Second World War.
Based on recent trends, countries might have discovered an antidote to eviscerating the buck from their systems.
No ‘Theft’ Here, Says Janet Yellen
Treasury Secretary Janet Yellen and her G7 counterparts established an agreement to sell Russia’s confiscated assets and transfer the proceeds to Ukraine. The US and its allies froze Moscow’s sovereign assets to the tune of about $300 billion and will now utilize the funds to help Kyiv’s war efforts and post-war reconstruction. The Kremlin called this “theft” and promised retaliation. The senior administration official disagrees, telling ABC News, “the investments that Russia had have matured, so Russia’s funds are sitting in cash. But they’re generating income for the institution, which Russia has no claim on.” Yellen confirmed that “there’s no legal issue here.”
This is the first time that the US has confiscated and exploited a foreign country’s assets without being in direct conflict, a move ostensibly endorsed by both sides of the political aisle.
Since Russia’s invasion of Ukraine, experts have warned about the consequences of the intense sanctions applied to Moscow. As LNN has noted for the last two years, if a nation can be cast out from the global economy like a leper, why risk continued participating in the system? A chorus of states, particularly adversaries of the West, have woken up and smelled the local currencies. Led by China and Russia, the BRICS coalition has established various trade agreements that will be settled in the Brazilian real, Chinese yuan, Russian ruble, and Indian rupee. In other words, no more dollars. Additionally, they have launched an international alternative to SWIFT.
Still, there is immense doubt that these will be successful endeavors, considering the lack of trust in these autocratic regimes. Despite the plethora of challenges gripping the United States, the world possesses faith in the world’s largest economy and the dollar.
Good as Gold
The World Gold Council (WGC) recently warned that gold is getting harder to find as miners struggle to excavate the yellow metal. Why does this matter? Gold is an industrial metal and a store of value, especially for central banks.
(Photo by Brownie Harris/Corbis via Getty Images)
Central banks, led by China and other emerging markets, have been rushing to buy gold in recent years. The WGC published the results of its annual Central Bank Gold Reserves survey and found that 29% of officials plan to bolster their gold reserves over the next 12 months, the highest figure since the organization launched the annual survey in 2018.
“The planned purchases are chiefly motivated by a desire to rebalance to a more preferred strategic level of gold holdings, domestic gold production, and financial market concerns, including higher crisis risks and rising inflation,” the report stated. But here is the kicker: “More advanced countries are saying that gold is going to occupy more of global reserves and the dollar will be less.”
Gold prices have been on a tear this year, climbing about 13%. This past spring, they touched a record high of $2,454.20 per ounce on the COMEX division of the New York Mercantile Exchange. While many factors have influenced the yellow metal’s ascent, it is widely expected that gold will remain above $2,000 for the foreseeable future.
All Hail King Dollar
The almighty dollar will remain almighty as long as the US empire remains intact. The world has witnessed what happens if a rogue leader attempts to diversify away from the buck. Does Libya’s Muammar Gaddafi ring a bell? When critics say the dollar is backed by nothing, they do not realize that the United States enjoys the world’s most powerful military and trillions of dollars parked across the globe. This ensures that nothing – neither the yuan nor gold – will ever topple the dollar. Considering Uncle Sam’s fiscal situation, it might not be an external threat that dethrones the king dollar.
