The End of Dollar Hegemony - 'A journey of a thousand miles begins with a single step...'

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Talk about alternative reserve currencies to the US Dollar will remain for as long as the US continues to use its economic power to promote its own agenda. The transition from the British Pound to the US Dollar as the global currency took decades... replacement of the dollar could come a lot quicker.

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It is ironic that following on from the Global Financial Crisis (GFC), which uncovered significant failings and weaknesses in the US economy, together with Quantitative Easting (QE), which flooded the US economy with dollars, the greenback remains the default currency of choice.

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In the years to come, the decision by US prosecutors and regulators to fine France’s largest bank, BNP Paribas, $8.9 billion for violating US sanctions on business with Iran, Sudan and Cuba may be viewed as a key catalyst for the transition away from the US Dollar as the world’s default reserve currency - Bloomberg.

If investors believe the ‘demise of the dollar’ has taken a step closer to reality, it will generate its own momentum and result in diminishing confidence and value of the currency. For example, as the world’s largest trader, it is illogical that China continues to rely on the dollar as a global reserve and payment currency when 25% of the country’s exports are now priced in renminbi.

Global investors need to consider more acceptable alternatives to the dollar. Increasingly, the choice will be a select band of currencies including the Euro, Swiss Franc and Japanese Yen. Additional currencies to consider as alternatives to the dollar include the British Pound, but more importantly, the Brazilian Real – the latter will be the fifth largest global economy within a few years and largest foods exporter. In short, there are sufficient alternatives to the dollar that would be more credible, less indebted and with brighter economic prospects.

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James Duckworth

Jack Dupay
Liquid Investments
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