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Days of Dollar Supremacy Numbered?



February 08, 2013 – Comments (0)

Board: Macro Economics

Author: notehound

Almost a year ago, Michael Snyder wrote an essay entitled "10 Reasons The Reign Of The Dollar Is About To End" for Since then, the US $ Dollar has remained strong despite $$ Trillion(s) of fiat conjured by the Federal Reserve. Everyone has read articles about how the US remains preeminently attractive as the "cleanest dirty shirt" on the globe. However, I wonder whether cumulative forces are at work that should not be ignored by investors planning for the long-haul. Snyder provides arguments supporting each of his 10 points.

The factors listed by Snyder as chipping away at the USD's reserve currency status are as follows:

#1 China And Japan Are Dumping the U.S. Dollar In Bilateral Trade
#2 The BRICS (Brazil, Russia, India, China, South Africa) Plan To Start Using Their Own Currencies When Trading With Each Other
#3 The Russia/China Currency Agreement
#5 The China/United Arab Emirates Deal
#6 Iran/India [gold for oil deal]
#7 The China/Saudi Arabia Relationship
#8 The United Nations Has Been Pushing For A New World Reserve Currency
#9 The IMF Has Been Pushing For A New World Reserve Currency
#10 Most Of The Rest Of The World Hates The United States

While none of the above factors may be significant by itself, in the aggregate it is hard to ignore their possible long-term effects upon the USD and its reserve status. It's no secret that Russia, China and India have been aggressive purchasers of gold over the last few years. One wonders whether the various bilateral and multilateral non-USD currency trade agreements among the countries, when coupled with their growing gold reserves and commodity assets (oil, gold, diamonds), would tend to protect the various currencies against uncontrolled global loss of purchasing power.

Assuming that the Fed continues to print with abandon for the indefinite future, and assuming that the Fed maintains zero interest policies for many more years (a virtual certainty), and given the virtually assured slow dismantling/de-funding of the US military over time (the USD is a currency "backed by guns"), how likely is it that the USD will continue to maintain its relative purchasing power for the things we need such as Middle East oil and Chinese-made tchotchkes?

The last year has shown that US has been losing the "race to debase." Therefore, the purchasing power of the dollar as to foreign goods is not necessarily in imminent danger of collapse. However, as to foodstuffs, oil, gold and commodities, creeping inflation appears to be in place - with prices moving up in fits and starts.

I have attempted to diversify my USD currency exposure in some small measure by holding foreign stocks/ETFs, Australian Dollars, Norwegian Krone, Chinese Yuan Renmimbi, gold and silver. At one point, I held Brazilian Real (before the Brazilian government got serious about impeding the flow of "hot money" into Brazil).

Jim Rogers, who successfully rode the China wave, very publicly announced last Fall that he planned to invest in Russian stocks and currency after a lifetime of avoiding Russia like the plague.

I am curious as to what other METARites are doing to hedge their USD currency exposure, if anything. The only person I know who has shared their thoughts on currency diversification is Jeff. 

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