by Daisy Luther, The Organic Prepper:
If you knew that you or your family’s breadwinner was terminally ill and there was absolutely nothing you could do to stop the decline, would you try to prepare? I’m not talking about just getting your mind wrapped around it, although that’s important too. I mean, physical preparations.
- Getting your finances in order.
- Getting urgent tasks completed.
- Figuring out how those left behind would survive when the person was gone.
- Completing important paperwork like wills, adding a loved one to your financial accounts, making sure your spouse was able to speak to the people at utility companies, and appointing someone to have power of attorney.
If your failing health allowed it at all, of course, you would. You’d organize everything to lift some of the burden from the people you were leaving behind.
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So if we know that the US Dollar is gasping its last breath, why wouldn’t we do the same and prepare to live without it?
Is the dollar dying?
Read different websites and get different stories. Many prominent financial experts are absolutely convinced that the dollar is gasping its last breaths, including Forbes.
During a three-day state visit, Chinese President Xi Jinping held friendly talks with Russian President Vladimir Putin in a show of unity, as both countries increasingly seek to position themselves as leaders of what they call a “multipolar world order,” one that challenges U.S.-centric alliances and agreements.
Among those agreements is the petrodollar, which has been in place for over 50 years…
…Putin couldn’t have been more explicit. During Xi’s state visit, he named the Chinese yuan as his favored currency to conduct trade in…
…other major OPEC nations and BRICS members (Brazil, Russia, India, China and South Africa) are either accepting yuan already or strongly considering it. Russia, Iran and Venezuela account for about 40% of the world’s proven oilfields, and the three sell their oil in exchange for yuan. Turkey, Argentina, Indonesia and heavyweight oil producer Saudi Arabia have all applied for admittance into BRICS, while Egypt became a new member this week.
What this suggests is that the yuan’s role as a reserve currency will continue to strengthen, signifying a broader shift in the global power balance and potentially giving China a bigger hand with which to shape economic policies that affect us all.
Forbes says that the US dollar is still the world’s reserve currency. For now. But to lose that status would be utterly devastating to our already shaky economy. If the world no longer trades in petrodollars, then the dollar is no longer the world’s reserve currency.
At the same time, other experts have pooh-poohed the idea that the petrodollar might be no more and the petroyuan was ready to jump into its place. Writers from both Barron’s and Bloomberg are confident that the petroyuan is a myth.
You should certainly do your own research about this topic, but the fact that other countries are ready to ditch the dollar is very concerning. This makes tangible assets like gold and silver among the only safe options to hold wealth.
How would it affect us if the USD is no longer the world’s reserve currency?
First, let’s talk about what it means to be the world’s reserve currency. The Council on Foreign Relations explains the importance of being in this position.
A reserve currency is a foreign currency that a central bank or treasury holds as part of its country’s formal foreign exchange reserves. Countries hold reserves for a number of reasons, including to weather economic shocks, pay for imports, service debts, and moderate the value of its own currency. Many countries cannot borrow money or pay for foreign goods in their own currencies—since much of international trade is done in dollars—and therefore need to hold reserves to ensure a steady supply of imports during a crisis and assure creditors that debt payments denominated in foreign currency can be made.
Most countries want to hold their reserves in a currency with large and open financial markets, since they want to be sure that they can access their reserves in a moment of need. Central banks often hold currency in the form of government bonds, such as U.S. Treasuries. The U.S. Treasury market remains by far the world’s largest and most liquid—the easiest to buy into and sell out of—bond market.
The International Monetary Fund (IMF), the body responsible for monitoring the international monetary system, recognizes eight major reserve currencies: the Australian dollar, the British pound sterling, the Canadian dollar, the Chinese renminbi, the euro, the Japanese yen, the Swiss franc, and the U.S. dollar. The U.S. dollar is by far the most commonly held reserve currency, making up more than 60 percent of global foreign exchange reserves.
Simply put, our status means we can use and exchange our money anywhere in the world, so other countries use it too when engaging in international trade.
What happens if we lose our reserve status?
In short, it would be absolutely catastrophic if other countries began trading in oil using other countries’ currencies, causing us to lose our reserve status.
The following events could rapidly occur:
Loss of our ability to trade with foreign countries in our own currency
This means whatever value is assigned to the US dollar by the new reserve currency would be far lower than it is right now. This could render the US dollar basically worthless, as it is no longer tied to the gold standard and has nothing to back it but promises.
This would make everything we import far, far more expensive. In a simplified example, if what is now a dollar became internationally worth 20 cents, we’d see that reflected in the prices that consumers pay for everything we import. Think about how this would affect the availability and cost of necessities like automotive parts, medications, and medical equipment. It’s staggering.
Other countries could potentially call in our debts as they come do.
We owe craptons of money to other countries. Investopedia reports on the top nations that own our debt:
- Japan: $1.2 trillion—4% of total U.S. debt
- China: $980.8 billion of U.S. Treasurys—3.2% of the total U.S. debt
- The U.K.: $634 billion
- Switzerland: $294.1 billion
- The Cayman Islands: $293.2 billion
It’s some consolation that the debt is configured in a way that it cannot all be called in immediately. The debt is held in US Treasuries that mature at different times. But countries could call in the debts as they come due, demanding payment in full instead of extending their investments in US Treasuries.
We could default on our debt payments.
Another concern would be our inability to make payments on our debts. Anyone who’s ever gotten in over their heads financially knows what that means to everyday humans, but how would it affect a whole nation? According to Thomson Reuters:
In the medium- to long-term there would be a global recession and higher costs of doing business for everyone involved. Without a dominant global trade regime, trading blocs will vie for supremacy, perhaps erecting barriers to trade such as requiring business to be done solely in the bloc’s currency of choice, be it the euro or yuan. Money will be tight, and importers and exporters will face delays or maybe even find their jobs impossible for long stretches of time until the new global market dynamic has a chance to emerge.
Despite rising labor costs in countries such as China, the economic disruption may further hamper movement of manufacturing to lower-cost developing countries, further pushing up costs and hampering global economic growth. Yet, out of everyone impacted, the U.S. will be the one left the most scarred. Thrown into a deep recession, its financial system and credit facing the greatest challenge since not 2008, but rather 1929, the prosperous United States at the center of a global economy will become a memory.
Not only would it have physical financial effects, but it would also breach the trust that has allowed us to freely trade with other nations. This would put us in an unaccustomed position of being the one to need aid, rather than the one to give aid. Talk about upturning the global power dynamic.
How do we prepare for this?
As scary as all of this sounds, getting ready for the possibility isn’t that different from other types of prepping. It’s still an economic collapse, and by breaking it down into those parts, it’s far less overwhelming to think about how we’d get through it.
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