By Eric Reich
There has been some talk lately, mostly by foreign countries who are talking about replacing the U.S. dollar. While this concerns many investors, the reality is that it is very unlikely that the dollar could be replaced as the world standard currency in the remote near future. There are many factors that contribute to this, but today, I wanted to tackle a few in order to put this movement into perspective.
The U.S. economy is the largest economy in the world at roughly 27,000 billion dollars. China is the next largest around 17,800 billion dollars. While these economies seem close, on a per capita basis, The U.S. is 80,000 per person vs. China at 12,500. No other country is even close with Japan being the 3rd largest at 4,200 billion. The sheer size of the U.S. economy alone makes a change unlikely. Other factors that would prohibit a change include.
- Price Stability. The hallmark of any currency is its stability. This is why a Bitcoin or similar will not replace the U.S. dollar. A lack of price stability is a huge deterrent to changing to another currency. This is the primary reason why the dollar is the world currency in the first place. Our dollar price has been extremely stable relative to other countries for a 100+ years.
- The U.S. is the most geopolitically influential country. Our international influence and broad alliances strengthen the argument for the U.S. dollar to remain the world’s reserve currency.
- Political stability is certainly a big factor in making the dollar the reserve currency as well. While we probably all rolled are eyes in unison reading that based on the state of politics in the U.S. right now, the reality is that our system is very stable relative to other nations. We have functioned politically in the same general manner for several hundred years now.
- Lack of an alternative. Many people talk about China’s yuan as being a potential threat to the dollar’s reserve status, but the reality is that China is a communist country without a stable political system or even basic freedoms in many cases. They have a long history of not allowing their currency to truly “free float” meaning a lack of government interference. They don’t hold free elections and suppress challenges to government authority. These factors add up to the rest of the world not being able to take replacing the dollar with the yuan seriously.
- History. The mere fact that the world has built their financial systems and much of the global economy around the U.S. dollar would make a shift a difficult, expensive, and very long process.
It’s not to say that the U.S. dollar could never be replaced as the world’s reserve currency, but based on this list it would be hard to imagine that happening in the next 75-100 years unless something changed to completely alter the current system.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a
Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations. A lifelong resident of Cape May County, Eric resides in Seaville, NJ with his wife Chrissy and their sons ,CJ and Cooper, and daughter Riley.
