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THE REIGN OF THE U.S. DOLLAR MAY BE COMING TO AN END – HERE’S WHAT YOU NEED TO
KNOW

Shah Gilani Apr 28, 2023

In the wake of the COVID-19 pandemic, the world has seemed more upside-down than
usual from a socioeconomic perspective. We’ve experienced massive upheavals in
nearly every aspect of business, from the way we work to the restructuring of
supply chains, and even the breakdown of globalization itself.

Well, as if that wasn’t enough, there’s another potential change coming on the
horizon that could blow everything we’ve seen so far out of the proverbial
water.

Now, the U.S. dollar’s global reserve currency status is being attacked in a
concerted fashion, which is something that’s never happened before.

If you’re not familiar with how a currency achieves “reserve” status, it’s first
and foremost about its use in trade, specifically global trade.

Historically, as powerhouse countries extended their reach globally, selling
their domestically made goods, and more importantly, buying foreign goods –
whether they were spices, commodities, or finished products – they pushed their
own home currency as the common means of exchange.

The “reserve” status moniker is a modern affectation pertaining to foreign
countries acquiring reserves of the global leader’s currency in order to
transact in that currency. The global leader’s currency isn’t put into general
circulation in other countries, but is instead held in bank accounts, mostly in
foreign countries’ central banks, as part of the reserves they stockpile.

Simply put, once every country is using your country’s money to buy the world’s
most important resources, you’re on top. The U.S. dollar has been on top for 103
years now, and it’s been great for American economic power and American
hegemony.

But there are groups out there who want to see all that end. And history paints
a grim picture every time it happens: the toppling of a country’s reserve
currency status has historically been followed by the country’s demise.

So here’s what you need to know about how we got here, as well as the political
and economic forces that made and have kept the dollar supreme.


A BRIEF HISTORY OF RESERVE CURRENCIES

There have been six reserve currencies throughout history, with each reigning
between 80 to 110 years.

The Portuguese Colonial Empire, the first global trading powerhouse, pushed its
trading partners to transact in the real, or “royals,” which were mostly coined
from gold. The Porto real dominated global trade for 80 years, from 1450 to
1530, when the Portuguese Succession and Iberian Union brought the real’s
prominence to an end.

Spain was next up. For 110 years, from 1530-1640, Spain’s global reach and its
silver real, or real de plata, backed and minted in silver, were the envy and
global currency. Until that is, the Dutch occupation, Catalan Revolt, fall of
the Iberian Union, and Thirty Years’ War.

The consolidated global power of the Netherlands, mostly the result of
far-reaching trade and land acquisitions conducted by the Dutch East India
Company, saw the Dutch guilder rule global currencies for 80 years, from 1640 to
1720. Then the Dutch East India Company ran into solvency issues and the
Anglo-Dutch Wars began.

Next up? The French. From 1720 to 1815, a 95-year run, the French livre, later
franc, dominated global trade. The French Revolution, followed by the Napoleonic
Wars, set the stage for France’s demise and the expansion of the British Empire.

For 105 years, from 1815-1920, not only did Britannia rule the seas, the British
Empire covered close to 33 million square kilometers. That’s about one-quarter
of the total land area of the planet. Its currency, the pound sterling, was the
coin of the realm.

The ravages of World War I marked the beginning of the end of the British Empire
and the pound. And that set the stage for the dollar to rise.


HOW THE UNITED STATES ACHIEVED RESERVE CURRENCY STATUS

American ascendancy started with a few key facts. First, the U.S. wasn’t ravaged
by World War I. Second, the nation’s total wealth (no pun intended) more than
doubled during the Roaring Twenties. Third, the U.S. thrived through World War
II and at its end was the strongest, richest, most powerful nation in the world.
All this helped ensure the dollar’s place as the new global reserve currency.

But two manifest destiny endeavors by the U.S. cemented the dollar as the
undisputed, singular, true reserve currency, and attached additional monikers to
reserve currency status, “store of value” and “safe haven.”

First, just before World War II ended, in August 1944, America’s power elite
convened a meeting of 44 countries at Mount Washington Hotel in Bretton Woods,
New Hampshire. Staking its claim on and in the new world order coming with the
end of the War, the American hosts laid out their plan for reconstruction and
resurrection of global trade and devastated economies.

That plan, known as the Bretton Woods Agreement, essentially foisted the U.S.
dollar to top of the heap, to solo premiership, as the principal global currency
linked to gold and linking all other currencies to the dollar. The new monetary
system that pegged a U.S. dollar to 1/35th an ounce of gold went into effect in
1945.

Since the dollar was directly pegged to gold, all other currencies could be
pegged to the dollar and not fluctuate inordinately, save for country-specific
balance of payments and debt-to-GDP issues. This had the desired effect of
smoothing out currency exchange rates, easing trade, and (most importantly for
American hegemony) cause foreign governments, banks and their central banks to
stockpile dollars alongside gold as their primary “reserves.”

The biggest benefit of commanding the world’s reserve currency is that everybody
uses it and needs to own it. That demand for the dollar makes borrowing easy and
cheap for the U.S. Treasury, since foreign dollar reserve holders use their
dollars to buy Treasuries and buy more dollars to invest in America and American
assets.

The second “manifest destiny” event took place in the 1970s. The U.S. was the
largest oil consumer on the planet when the Arab Oil Embargo caused oil prices
to quadruple. To tie Middle East interests to American interests, specifically
Saudi Arabia and Iran – the Middle East’s largest producers of oil at the time –
Secretary of the Treasury William Simon in 1974 constructed what became known as
the petrodollar regime.

The petrodollar regime was an understanding that the U.S. would contract and buy
huge amounts of oil from both Saudi Arabia and Iran, paying in dollars, which
the Saudis and Iranians would invest in U.S. banks and Treasuries. They would
also get discounts on U.S. military equipment, especially fighter jets, that the
two countries wanted to possess.

An additional kicker (that’s not openly admitted to) was that the Saudis and
Iranians could count on the U.S. for military help if they ever needed it.

With oil, the most widely traded and used commodity on the planet, now priced in
dollars, it occurred almost naturally that most other commodities would be
priced in dollars. That sealed the deal for the dollar as the most prominent
trade currency in the world.

And as far as global trade in dollars goes, the amount is staggering. As far as
American hegemony and power based on the dollar as the global reserve currency,
that’s even more staggering.

But it’s also a problem.

We’re going to be talking about this more over the next couple of weeks, so stay
tuned for next week’s installment. I’ll tell you why so much trade in dollars is
a problem, why American hegemony emanating from dollar power is a problem, who’s
mad as hell about it, who’s doing something about it, and what they’re doing.

But honestly, you can already see the capital shifts happening already as
America moves away from globalization and is starting to rebuild its domestic
capacities again. Infrastructure is a dominant theme in government spending,
with billions of dollars being allocated to update critical resources like
roads, water lines, and the electric grid.

I’ve been watching an opportunity forming in a small company with contracts
already in place that could be worth as much as $40 billion. The founders said
they’d be closing their doors to new investors in April, but after a few
conversations, they’ve extended that deadline to May 1.

Shares are going for less than $5, but when the deadline ends, Wall Street and
institutional investors are going to crowd the rest of us out. So now is the
time to get in, and I have all the details here…




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