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US Economy In Trouble
25 April 2023How Silver Is Used
23 May 2023
Everyone is talking about de-dollarization. What is it and why is it important to us gold and silver investors?
What is de-dollarization
The US dollar has for many years been the dominant currency ( reserve currency ) in which all international trade takes place. This puts the United States in a very privileged position because they can manipulate the strength of the dollar to suit their needs. For instance, if they want to hurt China, who they owe a huge amount of money in trade deficits, they can weaken the dollar and this will mean that they owe China a lot more money. The one who is owed money always worry the most. Weakening their currency will also assist them in achieving more exports as their goods will be cheaper overseas.
Why is this important to us gold and silver investors
Gold and silver prices are quoted in US dollar per ounce all across the world. We all know very well that precious metal prices will go up if the US dollar weakens and vice versa. It therefore stands to reason that we should keep an eye on the strength of the dollar to protect our investments.
Last month, Alexander Babakov, deputy chairman of the Russian state of Duma, said that his country is at the forefront of developing a new currency to be used by the BRICS block of countries. That is China, India, South Africa and Brazil. More and more calls are coming from all over the world to start using alternative currencies for global transactions. The South African ambassador to BRICS, Anil Sooklal, recently confirmed that more than a dozen countries have applied for membership as they want to start using the newly touted BRICS currency. As more countries join, the pressure on the US dollar will increase.
Between 1999 and 2019, it is estimated that 96% of invoiced trades in the Americas was in USD. Asia-Pacific was at 74% and 79% in the rest of the world. One economist referred to Europe as a museum, Japan as an old age home and China as a jail. It is important to realize that the GDP of the BRICS countries put together, is not only greater than the United States, but also the whole of the G-7 countries put together.
We can see how the dollar is declining by looking at the US Dollar Index graph below. This index measures the strength of the US dollar against a basket of the world’s most important currencies.
Technically speaking, the US dollar will go into free fall once it falls below 92 on this index. The high is 114 and the low is 101. We still have some way to go but we should all keep a close on this graph. For a more in depth look at de- dollarization you can look at an article by Atul Sehgal.
As investors we should ask ourselves how much of our investments have exposure to the US dollar.