The latest fear tactic, encouraging you to make terrible financial decisions, is that of the US Dollar losing its status as the world’s reserve currency. Apparently, folks are putting a lot of merit to the idea of Russia, China and Saudi Arabia forming an alliance whereby they demand payment for oil in another denomination. Other than great click bait, the idea of this resulting in the dollar’s demise, thereby making our currency worthless and thrusting us back into the stone age, is ludicrous. In no particular order, here are some thoughts on the matter worth considering before you go converting to the Yuan, Ruble or hoarding Gold coins under your mattress.

 

1.)    We’re at war – No, at present we’re not shipping troops to the front lines but if you haven’t realized we’re facing an economic war with countries who despise our freedoms, democracy and capitalist system you’re missing the big picture. China, Russia, Saudi Arabia, North Korea and a host of other nations would love nothing more than to supplant the United States as the global super power. During war, strategies will be developed and steps taken to achieve a set goal. At present, we have an administration that does not broadcast maneuvers while our media picks up and promotes every nuance from the other side. Simply realizing the situation we’re in may help to contextualize the claims. Before every fight, each boxer is certain he’ll win.

 

2.)    Size matters – One of the reasons the United States remains so strong is the size of our general economy. Why are Americans so quick to discount how incredibly large our system of commerce is compared to the world? Yes, we have our challenges and at times seem incredibly divided as a nation, yet our annual GDP is over 20 Trillion Dollars. China, a nation with a population over 4 times  the size of the US comes in at over 13 Trillion while Russia barely makes a dent at 1.7 Trillion (Pre-War) and Saudi Arabia 833.5 Billion. Combine these three and you have a whopping 16 Trillion in Communist and Corrupt GDP, still less than 80% of the entire US GDP. One has to ask if the rest of the world will one day wake up and say, ‘yes, let us exchange our dollars and invest our precious funds in these nations instead’. Not a chance.

 

3.)    Nothing New – For whatever reasons, the media likes to grasp something at a point in time that can garner the most eyeballs, even if that something is not new. For years there has been a movement by smaller nations to replace King Dollar; however, to date, this movement has been weak at best. There’s an old saying, ‘put your money where your mouth is’, which in this case would mean that other countries would be willing to hold currencies other than the US Dollar as part of their reserves. In June of 2022, an article was published looking at the breakdown of global reserves placing the US Dollar firmly ahead of others with 59% of all global reserves being held in USD. The next currency, not even remotely close, was the Euro at 21% followed by the Yen at 6%. Note that neither Europe nor Japan are in the discussion regarding supplanting the Dollar. In summary this means that when each country chooses to hold currency as a reserve, if you were to add up this entire amount across the entire globe, 59% of it is held in USD. That is a stat that’s tough to argue with.

 

4.)    Oil, Oil and more Oil – If economic superiority is not enough, one of the biggest threats to the Dollar is the discussion surrounding Oil. For the last several decades, Oil trade throughout the globe has been conducted in US Dollars, thus creating an inherent supply and demand for the currency. No matter where you have been, if you wanted to buy or sell Oil, you did so in US Dollars thus creating a natural economy for the fiat itself. Known as the PetroDollar, this has been one of the most dominant arguments for the Dollar holding its reserve status for some time. The real threat of this being altered, as certain countries begin demanding other currencies for their Oil, is a real concern. Or is it? There’s one little issue with this entire argument. WE HOLD THE OIL! I honestly think most Americans don’t realize this or somehow forget, depending on who is in office, that the United States produces more oil than any other country, by far. In 2021, on average the United States produced 16.6M barrels of oil per day, while Suadi Arabia and Russia came in at 2 and 3 producing 11 and 10.9 respectively. What’s critical to note about this statistic is that it comes during a time when our current leadership is actually opposed to oil production expansion. Basically, we’re the world’s largest producer of Oil despite a Government trying to stop the production altogether! Whether or not certain countries demand payment in other currencies is actually irrelevant. Truth be told, we don’t need their oil at all, which means the largest economy in the world wouldn’t need to convert a single penny if we didn’t want to. The argument doesn’t gain much momentum other than a shocking headline once you ‘drill’ down a little deeper.

 

 

5.) Debt in Dollars – Not a day goes by I don’t hear a concern about our National Debt. I’ve actually been hearing about this since I was in grade school. I was told shortly after entering the financial business that I should go into another field as our debt would soon cripple our nation to the point of no return. While I could spend hours discussing the problem with this argument and the simple lack of consideration of the asset side of the US balance sheet, something that is NEVER discussed, but it is not what I want to talk about today. What is interesting about our debt, is who holds our debt and in what denomination that it is held. Over $1T of our debt is held by the Japanese and around $800B is held by China. While it is true China has been slowly divesting their position, reduced by around 25% over the last several years, they have a vested interest in our currency and remain financially tied to our currency.

 

6.)    Democracy – Despite our vast differences and often polarizing viewpoints, one thing remains true in our country. We’re free. We’re free to pursue a business, spend money as we desire, invest in public ventures and most importantly, participate in electing government officials on a regular basis. If you’ve never traveled to another country, or even researched this further, please take a moment to appreciate just how good we have it in the US. We’re not ruled by a dictator, we have faith in our capital system, financial system and, for the most part, our public programs. When we put our money in the bank, even with today’s concerns we’re confident our FDIC insured limits will be there tomorrow. We’re free to practice religion and speech and for the most part, we all respect the governing documents of this great nation. There are very few countries in the world, if any, that boast this model. While countries may talk a good game, they vote with their money and, until a dramatic statement is made with capital flight, we remain the best investment in the entire world. Concerned about this administration? Don’t worry, we’ll face a new one in a few years? Concerned about this Congress? Don’t worry, we’ll vote for other members soon. While other countries seemingly stand still in time, we continue to progress and evolve despite our many differences and challenges. Whether we agree with that direction or not, it is the envy of the world’s capital and is why our dollar remains stronger than ever.

 

Headlines spark clicks, and clicks are what pay. While I realize it is the common theme to bash the US dollar and predict its demise, I believe that it is important to understand the full picture before we jump on that bandwagon. From my vantage point, while some general weakness in the dollar against its peers would actually be a welcome, the idea of it becoming anything less than #1 isn’t even close to becoming a reality.