This isn’t the first time I have addressed this topic, and it probably won’t be the last. But it is important to review given recent developments.

The U.S. government continues to act as ruler of the world, and this has only gotten worse since the war in Ukraine. The U.S. government has heavily sanctioned Russia, while expecting the rest of the world to go along with it.

Now we have the presidents of Russia and China getting together and making nice with each other. They are mapping out a future of trade that doesn’t involve the United States, and more importantly, doesn’t involve the United States dollar.

There are also other major countries like Brazil that are heading in this direction. But the biggest surprise may be Saudi Arabia. This country has reliably sold oil in the world market using U.S. dollars for the last half century.

It’s not that Saudi Arabia is abandoning the dollar, but it is telling that there will be oil trades in currencies other than the dollar.

The Dollar is Far From Dead

To be sure, the dollar is still considered to be the world’s reserve currency. It is still the big player in town.

The U.S. is the wealthiest country in the world in spite of the wasteful and destructive spending and high inflation. The U.S. is the economic powerhouse of the world, but it doesn’t mean it has to stay this way forever.

There is a reason that other countries want to do business using U.S. dollars. It has been a relatively reliable and safe currency, and others know it is always in demand.

But it was a terrible play by the ruling elite in the U.S. to sanction Russia and effectively default on certain “obligations”. Russia had smartly dumped most of its U.S. Treasury holdings years ago.

When all of this happened in early 2022, China held over $1 trillion in U.S. Treasury securities. According to the latest report on major foreign holders of U.S. debt, China’s holdings are down to about $860 billion.

So the Chinese are not abandoning the dollar. They aren’t panic selling U.S. Treasury holdings. But it seems they are slowly stepping away from the dollar and at least diversifying more.

All Fiat Currencies are Bad

Sometimes it isn’t a question of which currencies are good. It is more a question of which ones are the least bad.

We live in an inflationary world. Prices on consumer goods go up almost every year. This is true of almost every country on earth.

There is a reason for the existence of central banks. They aren’t there for price stability. They are there for economic control. They are there to help governments spend more money without resorting to direct taxation as much.

So it’s not that the U.S. dollar has been so great over the last hundred years. It has just been less bad than all of the other major currencies.

Perhaps one could argue that the Swiss franc has been less bad, but this is a very small fish in a big pond.

This is why I don’t think any other currency in existence is going to replace the U.S. dollar as the reserve currency.

Europe has as many problems or more as the U.S. when it comes to debt and a fragile banking system. And Europe’s economy is not as strong in general.

The same goes for Japan. The government debt in that country makes the U.S. Congress look conservative with money.

China is certainly an economic powerhouse, but there are still many restrictions, and the yuan is not a freely-floating currency. That right there eliminates it from being the world’s reserve currency.

Those are the big players. The euro, yen, and yuan all have their problems, and it is unlikely any of them will replace the dollar as the world’s reserve currency.

Why Do We Need a Reserve Currency?

Just because the U.S. dollar has had this status since the 1940s, it doesn’t mean that the world needs one reserve currency.

The most likely outcome is for the dollar to just slowly lose its dominance and for countries to trade with their own currencies.

If Saudi Arabia sells oil to China, there is no need to use the dollar. They can trade in yuan.

It is easy to convert into other currencies these days. Everything is electronic. As long as there is convertibility, there is no reason that other countries need to use the dollar as a middleman.

The Golden Possibility

If anything takes the place of the U.S. dollar as the world’s reserve currency, it isn’t going to be another fiat currency.

I believe the only possibility is gold.

In fact, it already serves as something like a reserve currency. There is a reason that central banks hold gold. They don’t hold other commodities that I know of.

Gold has served as a form of money for thousands of years. And even though there are no currencies backed by gold at this time, the gold holdings of central banks help to give some kind of implicit backing to their currencies.

It is a very real possibility that some countries may start to use gold more for international trade. It is also possible that they may start to partially back their currencies.

And if this happens with a country like Russia or China, it’s not as if the U.S. government can just invade militarily and put a stop to it.

I hesitate to say that some kind of an international gold system is inevitable at this point, but it is a real possibility in the coming years.

Either way, it is important for individuals to protect themselves from government and central bank inflation, and gold will become a more attractive investment again for this reason alone.