The Instability Of The Dollar

The Instability Of The Dollar: End Of Dollar Dominance

Since the twentieth century, the US dollar has gained the status of a global currency. When you travel around the world, it is quite common to find that the US dollar has become engrained in a country’s economy. Whether you buy and sell goods or travel around the world, the dominance of the American dollar is well exhibited. However,  the worth of the dollar has been steadily decreasing because the US treasury is printing money excessively under the direction of the FED.

Overview and dominance of the US dollar

During the 18th and the 19th centuries, it was the British pound that reigned as the world’s reserve currency. However, the American dollar claimed this title in the 20th century. It happened with the end of the Second World War. The dominance of the US dollar can be seen in three categories.

Official Dollarization

The US dollar is only the legal tender, and there is no local currency in some countries. Examples of this can be seen in El Salvador, Panama and Ecuador. For instance, Panama has used the American dollar since its independence. Surprisingly, the United States government doesn’t have to provide its approval for another nation to use its currency as legal tender.

Semi Dollarization

Semi Dollarization could be seen in countries that use both the US dollar as well as its own currency. Examples are Cambodia and Lebanon. Both these countries use their own currency as well as the American dollar interchangeably as legal tender.

Unofficial Dollarization

As the word implies, unofficial Dollarization means unofficial use of the US dollar. In many countries, the dollar is widely used and accepted in private monetary transactions. However, the dollar is not regarded as legal tender in these countries. This can be seen in many developing nations like India.

The instability of the US dollar

Even though the US dollar has ruled the world for many years, it has started showing a downward trend. The dollar is shrinking as a percent of the world’s currency supply, raising worries that the “greenback” is about to see its long run as the globe’s premier denomination come to an end. When compared with other currencies, the dollar has drifted downward to a 15 year low indicating that more and more countries are now willing to use other currencies or gold to carry out their business and global transactions. Gold ATMs can be found in some countries. There are a host of reasons that have resulted in the downtrend; some of the common reasons are detailed below.

Use of other currencies as a global currency by other nations

Nowadays, many countries are using other currencies for global and local transactions. The best example in this regard is the use of Euro in the European Union. In Europe, Euro is accepted as a common currency. Similarly, many oil producing nations are now using Euro instead of the American dollar for trading oil and other items. The main reason why nations are shifting to other currencies is they are constantly losing faith in the worth of the US dollar. In order to avert any unusual situation, nations now prefer Euro and other currencies for carrying out business transactions among them.

Excessive printing of dollars by the US government

One of the major reasons why the dollar has drifted is the fact that the US government is printing money excessively. Excess printing of money only decreases the value of the dollar. It also signifies to the world that the US dollar is not backed by equivalent amount of gold. Moreover, when supply exceeds demand, the value of any item including currency goes down.

Similarly, excessive printing of money by the government to cope with the country’s challenges also indicates that the country is not having enough monetary resources to fulfill its monetary obligations. Often you get to read news that investors are shifting their dollar hoarding to gold and other investments. All such things create a deep pressure on dollar, which in turn leads to decrease in the worth of a dollar over time.

Although the American dollar has ruled the world since decades, it has shown a  downtrend in recent years. The use of other currencies by nations all over the world, excessive printing of dollars by the US treasury, the instability of the dollar etc are some of the reasons why dollar has shown a downward trend during past few years.

Consider investing in gold as part of your portfolio to hedge against the possible collapse of the dollar.

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