Virtually all of the world’s economy hinges on the US Dollar. This has created a rather worrisome situation, as it seems that the strength of the Dollar is waning significantly.
So much even that some experts expect the current situation will come to an end. Bridgewater Associates Head of investment Research Karen Karniol-Tambour is one of those who firmly believes this to be the case.
Why is the US Dollar a problem?
Several factors are working against America’s greenback today. Rising geopolitical tensions are a key example. These “mind games” force countries to look at other solutions in terms of finance. It has given rise to the idea of building competing financial rails.
In China and Russia, such a system has been in development for a while. Known as CIPS, it is designed to rival Swift in the Western world. How successful this project will be, remains uncertain. There are still a lot of kinks to work out. If even remotely successful, it poses a genuine threat to the US Dollar.
Secondly, there is the concern of manipulating the strength of the US Dollar. According to Karniol-Tambour, there are signs this may be happening already. The prime purpose of doing so is for political purposes. The willingness to exploit the greenback as political leverage doesn’t bode well for the future.
Signs of these games are already visible. President Trump continues to attempt to weaken the dollar. He also wants the Federal Reserve to lower deposit rates accordingly. At certain points, it seems as if the US is taking a page out of China’s book. That government has a long and colorful history of devaluing its domestic currency.
Last but not least, a ceiling has been reached. Due to the greenback being part of the global financial system for decades, its maximum potential has been reached a while ago. It seems as if the only way from here is downhill.
A Weaker Dollar Isn’t all bad
There are always two sides to every story. A weakened US Dollar can be beneficial in certain regards. It makes US exports more attractive, as goods are cheaper for foreign consumers. Additionally, it helps shrink the trade deficit between the US and its partners.
Regarding lower deposit rates, the opinions are somewhat divided. Forcing investors to look for alternative investments isn’t detrimental by definition. It also aids in decreasing the value of the currency used to purchase those new assets. A tough balancing act to pull off, as it this can spiral out of control very quickly.
Several countries have already begun stockpiling other assets. Gold remains a very powerful solution in this regard. Eastern countries are slowly increasing their precious metal stockpile. In the West, the opposite appears to be happening.
This doesn’t mean that the US Dollar will fail overnight. However, Karniol-Tambour is convinced this is merely a matter of time. Once more global alternatives become viable, things can change very quickly indeed.