Is the U.S. Dollar REALLY in Trouble?

Is the U.S. dollar really in trouble?

Its status as the world’s reserve currency is certainly in serious question.

And very few investors are ready for what lies ahead.

In their eyes, the dollar will always be king and king maker.

But global reserve currencies like the dollar have a “shelf life.” They come and go.

The last five reserve currencies lasted 94 years. The dollar is in Year 103.

To be fair, other analysts have been warning of the dollar’s demise for many years… and in some cases decades.

But efforts to knock the dollar from its throne have kicked into high gear lately.

If you haven’t guessed already, we’re talking about “de-dollarization”.

This is the idea that the dollar’s role in the global economy will decrease over time.

Regular Discount Weekly readers know this theme all too well.

We did a “deep dive” on the subject back in June. If you’re new to The Discount, you can check out that issue here.

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In short, we believe the dollar is under assault. Its dominant position in the global financial system will only decrease from here.

This is one of today’s biggest issues, and not just for investors.

Everyone who holds dollars will be impacted by de-dollarization. It doesn’t matter if you’re heavily invested in stocks, real estate, bonds or cryptocurrencies.

Since publishing that issue, this trend has accelerated.

Just last week, Brazil’s President called on the BRICS - a global trade group - to establish a common currency for trade and investment.

The hope is that a common BRICS currency would reduce dependency on the dollar and reduce vulnerabilities, which might have something to do with America “weaponizing” the dollar in recent years.

The group has also discussed settling more trade in their own national currencies, which could also deal a blow to the U.S. dollar.

If successful, it would have profound implications on the global economy.

Today, the dollar accounts for 58% of central bank currency reserves. It’s unrivaled, although it did account 73% of global currency reserves in 2001.

The dollar also dominates the commodity trade.

Practically oil sales - the world’s most important commodity - are settled in U.S. dollars. That’s where the name “Petrodollar” comes from.

In short, the dollar is still king. But the seeds for a very different future are being planted…

A Growing Number of Countries are Moving Away From the Dollar

The BRICs alliance was established in June 2009.

Its name is an acronym for its original member countries: Brazil, Russia, India, China, and South Africa.

These countries make a huge chunk of the global economy. China, for one, is the world’s second biggest economy.

But the alliance is about to become much more economically important.

Last week, the BRICS announced that it would be adding six new members to their alliance - Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates (UAE) - in 2024.

Together, the newly expanded BRICS will soon account for nearly $31 trillion, or about 29%, of the global economy, as measured by Gross Domestic Product (GDP).

Once expanded, the group will also account for 46% of the world’s population.

Eventually, BRICS could easily account for more than 50% of the global population. And there are a couple reasons why…

For one, many of its members are still developing nations, meaning their populations are still growing rapidly. Not only that, other countries have expressed interest in joining.

Not only that, the addition of Saudi Arabia, Iran, and the UAE to the BRICS will more than DOUBLE the oil output of the alliance to 43% of global production.

That last point is huge…

Remember, oil is by far the world’s most important commodity. It’s a $2.1 trillion market, making it ten times the size of the global gold market.

And remember, almost all of the world’s oil sales are currently settled in the U.S. dollar. But major efforts to change this are underway…

In January, Saudi Arabia’s Finance Minister explained how the oil-rich nation country was open to trading in currencies beside the U.S. dollar. That’s something it hasn’t done in five decades.

If the BRICs start settling oil in a common currency or even their own national currencies, demand for dollars could collapse.

Of course, that doesn’t mean that the U.S. dollar is headed to zero… like many folks are saying.

It should continue to play a major role in global trade for decades to come.

But its share of the global trade pie could shrink… meaning the dollar could lose value relative to other global currencies.

In other words, don’t expect this trend to play out overnight. It will unfold over the course of decades.

In other words, it’s not time to short the dollar just because the de-dollarization movement is ramping.

Expect the Dollar to Strengthen in the Near Term

We actually see the U.S. dollar heading higher in the coming months.

To understand why, take a look at this chart. It shows the performance of the U.S. Dollar Index over the past year.

This index measures the dollar’s performance versus a basket of other major currencies, including the euro and Japanese yen.

For much of the past year, the U.S. Dollar Index has been falling. But it’s made a stunning reversal in recent weeks.

In the process, it broke the downtrend that it’s been in since late 2022. It’s also reclaimed its 200-day moving average.

This price action suggests the dollar could be headed higher in the coming months.

If that plays out, risk assets like stocks and cryptocurrencies could struggle.

But we don’t expect the dollar to climb forever. Long term, de-dollarization efforts will chip away at the dollar’s market share in trade, investment, and global reserves. And that should cause the dollar to lose value relative to other currencies.

It’s crucial that you’re prepared for this. And one of the best steps you can take today is to start accumulating hard assets…

Now, this could be a false breakout. If so, our free Telegram Channel members will be updated in real-time.

But whether it is now, a few months or a year down the line, we expect a massive move for the dollar as deflationary and recessionary pressures continue to build around the globe.

Own Hard Assets

Hard assets like Gold, Silver, and while still unproven long term, the most popular finite digital currency: Bitcoin.

They have fixed supplies. Unlike the Dollar, Euro, Japanese Yen, or Chinese Yuan, they cannot be created from thin air.

This scarcity makes them extremely valuable in a period of rapidly depreciating paper currencies.

And we like them as long-term holdings for a simple reason..

If and when another currency replaces the dollar, it will still be fiat money… meaning its value can be destroyed by whoever is in charge of it.

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For now, stay tuned and have a great rest of your weekend.

See You Next Sunday!