Gold: The United States & The Path To Destruction
The critical situation and the future of the US public finances have started to cast more than just a shadow of doubt on the currency hegemony of the US dollar. Although the US GDP in terms of global economic output has fallen to only 25%, the US dollar still accounts for more than 60% of global foreign exchange reserves. It seems that many countries want to cast off the shackles of the US dollar. China, Russia, India, as well as Japan intend to increase the share of trade invoiced in their own currencies so as to circumvent the US dollar. This clearly marks a paradigm shift because more than two thirds of all US dollars are held abroad....
If it seems absurd and illusory today to think that the US dollar could lose its status as the leading global currency, but a look into the history books might help. Portugal (1450-1530), Spain (1530-1640), the Netherlands (1640-1720), France (1720-1815), and Great Britain (1815-1920) were coining leading global currencies for centuries, and have in the meantime lost more or less all of their former monetary splendor. Interestingly, these cycles tend to last about 90 to 100 years, which would also suggest the imminent changing of the guards for the US dollar.
Since the Chinese current account surplus has been on a steady decline, the widely held opinion of the massive undervaluation of the yuan seems to become more susceptible to questioning as well. Therefore, a quick internationalization would make perfect sense from a Chinese point of view. Officials have also confirmed this hypothesis. The Head of Research at the People’s Bank of China recommends investing in gold in order to protect and diversify China’s currency reserves. Zhang Jianhua said that “gold was the only safe haven for risk-averse investors, whereas other forms of investment from government bonds to property were losing value.” It was necessary for the Chinese government to further optimize the portfolio structure of its currency reserves. He advised buying gold on relative weakness.
Therefore, we expect the Chinese central bank to continue gradually accumulating gold, and we think that it might be planning a gold backing for the renminbi. If that were to happen, international acceptance would soar. The enormous amount of gold reserves in the United States (N.B. the US reserves were at 29,663 tons in 1953) along with military dominance were central reasons for the US dollar becoming the global reserve currency. |
