King Dollar’s Days Are Numbered

When you’re standing on the top of the mountain, there really is only one direction to go.

And therein lies a hurt-filled future for American savers and American households.

That hurt will come by way of an era’s end—the end of the dollar as the world’s only reserve currency.

Those who prepare, you’ll be fine.

Those who don’t…

A lot of people will scoff at this idea. Probably punctuate it with a headshake or an eyeroll.

I understand why, of course. Since 1944, King Dollar has been standing atop the mountain of currencies like some wise, old Buddhist monk.

These days, however, fewer folks than ever make the climb to seek the monk’s wisdom. You see, he’s grown increasingly belligerent… His wisdom is less about benefiting the world at large, and more about self-interest and berating the world.

There is, however, one climber still ascending.

But not for benevolent reasons, and certainly not seeking dollar wisdom.

He’s coming to push King Dollar off the mountaintop.

That climber: The Chinese yuan.

Many a year back, sometime around 2011, I told my readers that this day was coming. That China was going to make a run at building a reserve currency to compete against, maybe even depose, King Dollar.

Lots of scoffing and headshaking and eyerolling back then, too.

Yet here we are, 15 years later, and China’s making a play.

China and Russia, along with other members of the BRICS bloc, are building a new currency backed by gold and which aims to serve as a new trade-oriented currency to facilitate global transactions outside the dollar.

It’s not the first time China has made efforts to undercut King Dollar—mainly by attempts to build non-dollar financial infrastructure that allows countries to bypass US-controlled financial networks like SWIFT. SWIFT allows banks to move money around the world, but the US government uses it to attack nations and foreign individuals by cutting off access to pretty much anything financial, since US financial institutions essentially control the world.

And now, China has openly stated that it’s looking to directly challenge the dollar’s global dominance. Per a CNN report:

…the flagship ideology journal of China’s Communist Party published remarks from President Xi Jinping that outlined plans to turn the renminbi [aka, the yuan] into a global reserve currency. That’s the role the US dollar currently plays – the go-to currency for the vast majority of foreign transactions, making it one of the world’s safest investments.

No one expects that to change anytime soon. But the steep decline in the dollar’s value since Trump took office again last year has at least opened the door to potential challengers.

According to the journal Qiushi, Xi told government officials that China should aspire to establish “a strong currency widely used in international trade and foreign exchange,” with a “powerful central bank” and the ability to attract investment and influence global pricing.

The only quibble I have with those three paragraphs is the notion that “No one expects that to change anytime soon.”

Actually, some of us do expect that to change soon… sooner than most might think.

I suspect the move to replace the dollar as the currency cog in the world trade machinery will be fully underway by the end of the decade.

The reasons are visible all over a world that is mad at the dollar—not so much because it’s the dollar, but because it represents an increasingly belligerent country that has exploited the dollar’s reserve status for its own benefit, while simultaneously harming other economies.

But we don’t even have to go that deep to understand the risk the dollar faces. We can just look to the current White House administration. This is from Chatham House, or what’s officially known as Britain’s Royal Institute of International Affairs, a think tank founded in 1920 and charged with helping governments and societies relative to international affairs:

The dollar’s decline over the last year is “rooted in the view of some within the Trump administration that the reserve currency status of the dollar is more of a burden to the US economy than a blessing.

Their remedy is to erode the dollar’s status in the international monetary system as part of an effort to weaken it permanently against other currencies, hoping that a more depreciated dollar might reduce the trade deficit and attract manufacturers to the US.

That view is very hard to defend. But if the administration really does aim to erode the dollar’s status, the international monetary system could enter a form of anarchy it hasn’t experienced since President Richard Nixon disconnected the value of the dollar from gold more than 50 years ago.

As I’ve been writing about for months, the White House wants a weaker currency. The rest of the world sees this, so the rest of the world is progressively moving away from the dollar… which is an opening for China.

And if not China, then some kind of basket of currencies to serve as a global reserve, or maybe even three regional baskets—Asia, the Americas, and Europe—that all trade against one another.

Whatever the case, the result is the same: a declining need for so many dollars in the world.

That leaves an excess supply of dollars, and it reduces the otherwise unnatural demand for the dollar on the global stage. That unnatural demand has kept the greenback’s global value elevated for decades.

As the unnatural demand begins to fade… the dollar weakens more… inflation rises in America… the government struggles to sell all the debt it needs to sell every year… market interest rates in America rise… the cost of maintaining debt cramps the typical American household… real estate prices fall in order for houses to remain affordable relative to the monthly payments on mortgages that are much higher than they are today.

The protection: Building into your life now sources of income that are not tied to the US dollar. That includes foreign, income-producing real estate, foreign bank accounts that pay interest in foreign currencies, and owning foreign dividend-paying, blue-chip stocks.

As the dollar declines, rental payments, interest payments, and dividend payments generated overseas will buy an increasing amount of dollars when you repatriate the cash.

The dollar won’t always sit atop the mountain. History offers nearly 600 years of proof, going back to the mid-1400s and the nearly century-long reign of what was then known as the Portuguese real.

You still have time to build in your protection. Just know, though, that when the world decides the dollar is the next currency to lose global reserve status—to the Chinese yuan or whichever replacement—the reset is going to occur exceedingly fast.