A Weak Dollar Is More Than Just Economics. It’s the Political End of The U.S.

We’ve heard a lot about de-dollarization in recent weeks. That’s a movement of foreign countries and trading partners to move away from using U.S. dollars as a means of payment for exports and imports.

Taken further and given enough time, the de-dollarization movement could spread from payment currencies to affect the role of reserve currencies. This is all a reaction to the weaponization of the dollar by U.S. officials in the form of financial sanctions against Russia for its invasion of Ukraine and other countries such as Iran, North Korea, Syria, Venezuela, and others for policies the U.S. doesn’t like.

On a case-by-case basis, some of the sanctions may be justified, and some are effective at advancing U.S. interests. But in the aggregate, the overuse of sanctions by the U.S. has caused other countries to wonder what would happen to their trade and surpluses if the U.S. decided to target them.

One way to hedge this geopolitical exposure is to diversify national reserves into gold, which cannot be seized or frozen. The payment currency problem is being addressed with new commodity-backed currencies being developed by BRICS+ (Brazil, Russia, India, China, South Africa, and others) that will be unveiled this August.

Currency traders and geopolitical experts may be aware of these developments. Still, everyday Americans and most politicians are only barely aware of the threat.

One of those who is aware is Senator Marco Rubio, Republican of Florida. In this column, Rubio singles out China as the primary enemy of the U.S. when it comes to efforts to destroy the role of the dollar in international trade and investment.

I agree with Rubio that China is the leader of the global effort to destroy the dollar. But I disagree that China is the dollar’s main problem. The problem comes from the U.S. Treasury and the White House itself.

The greatest threat to the dollar comes from uncontrolled spending, massive budget deficits, profligate money printing, reckless sanctions, and other policy actions that make the dollar an unattractive asset for foreign investors to hold.

It’s important to watch what China is doing in the international currency markets. It’s more important to put some limits on spending, deficits, and money printing in Washington.

If we support the dollar instead of taking it for granted, foreign investors will do their part by holding dollar assets. The concern is that policymakers won’t get the message in time. In that case, the only hedge is gold.

Corporate leaders and institutional fiduciaries looking to incorporate state of the art predictive analytics to their risk mitigation and strategic analysis should click the link to learn more about Raven Predictive Analytics®