Is the Dollar going to collapse? What will happen and how can you protect yourself?

For the dollar to collapse there must be an underlying weakness. From 2002  to 2018, the dollar has declined 6 percent according to the U.S. Dollar Index because the U.S. debt almost more than tripled during that period to a whopping $22 trillion. The debt-to-GDP ratio is now more than 100 percent which increases the chance the United States will let the dollar deflate in value as it would be easier to repay its debt with cheaper money.

For the dollar to collapse there must be another currency for everyone to buy. The dollar’s current strength is based on its status as the world’s reserve currency. The dollar became the reserve currency when President Nixon abandoned the gold standard 1973. As a global currency, the dollar is used for more than 50% of all cross-border transactions which means central banks must hold the dollar in their reserves to pay for these transactions. Currently 61% of these foreign currency reserves are in dollars. Coming in 2nd by quite some distance is the euro at less than 30%. The Eurozone crisis has made its potential to become the world’s reserve currency obsolete.

China and Russia argue that a new global currency. Both countries would like their own currencies; the rubble and the Yuan to become the next world’s reserve currency. And for obvious reasons; it would lead to significant economic growth for China which is currently in the process of massive economic transformation. China is right to be alarmed at the dollar’s potential deflation because it is the largest foreign holder of U.S. Treasurys, so it just saw its investment deteriorate. The dollar’s weakness also makes it difficult for China to control the yuan’s value, which is pegged to it.

Some more internationally minded people argue bitcoin could replace the dollar as the new world currency as it’s politically neutral and not controlled by any one country’s central bank. It is created, managed, and spent online making it 100% digital. It can also be used at brick-and-mortar shops that accept it, although this percentage is very low at the moment. Bitcoin is programmed to be finite which appeals to those who would rather have a currency that’s backed by something tangible, such as gold. Although many prominent gold advocates such as Peter Schiff and Robert Siyosaki are amongst Bitcoin’s fiercest critics. And criticism of bitcoin is not just luddite conservatism, there are big obstacles. First, its value is highly volatile as there is no central bank to manage it. Second, it is used frequently for illegal activities such as drug trafficking on the dark web, which makes it vulnerable to tampering by unknown forces.

For the dollar to collapse there needs to be a huge economic event that destroys people’s confidence in the dollar. Collectively, foreign nations own over $6 trillion in U.S. debt. If China or other key shareholders started dumping these holdings of Treasury notes, this could trigger a major panic leading to collapse. China owns $1 trillion in U.S. Treasury’s because China pegs the yuan to the dollar. By pegging the Yuan to the Dollar, China keeps the prices of its exports to America cheap.

China and other countries that own Dollars could only if they saw their holdings declining in value rapidly and they had another export market to replace the United States. The countries that own US treasury bonds are dependent on U.S. consumers. China, Japan and others all know that if they sell their dollars, it would further depress the value of the dollar. Which means their products, still priced in their own currencies will cost more in the United States, meaning exports could decline and their economies would suffer. Right now, it’s still in their best interest to hold onto their dollar reserves. Although economic developments in China could majorly change this current situation. China is selling more and more to other Asian countries as they become more economically developed. Furthermore Chinese manufacturers have already begun outsourcing to Africa, a continent now being dubbed Africa’s Africa.

Despite economic developments, for the time being the United States is the best market in the world for exporters so it’s unlikely a collapse is imminent despite what people trying to sell you vast quantities of gold will tell you on the internet. China knows that it’s bad business to bankrupt your best customer. But the dollar will gradually decline in value against the Yuen as China finds more markets to export to.

I recommend holding foreign mutual funds and valuable commodities such as gold and silver. I personally hold small amounts of crypto currencies for additional security. So whilst the Dollar collapse and the subsequent economic apocalypse are unlikely having a well diversified portfolio and liquid assets also is well advised.

If you would like to invest in your security you can get 10$(or £7) worth of bitcoin FREE when you spend 100$ (or £76) when you use this link below

Published by Millionaire Mindset

A student run blog focused on business, self improvement and productivity.

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