For years, currency analysts have looked for signs of an international monetary “reset” that would diminish the dollar’s role as the leading reserve currency and replace it with a substitute agreed upon at some Bretton Woods-style monetary conference. The signs of a reset are everywhere, but at least for now the dollar is still king of the hill.
The dollar represents about 60% of global reserve assets, 80% of global payments and almost 100% of global oil sales. With such a dominant position, the dollar will not be easy to replace. Still, the trends are not good for the dollar.
The international reserve position may be 60%, but as recently as 2000 it was over 70% and just a few years ago it was still at 63%. That trend is not your friend.
Russia and China have been amassing massive quantities of gold (see article below). Russia has sold off almost all of its dollar-denominated U.S. Treasury securities and has increased the gold portion of its official reserves to over 20%.
Another challenger to the dollar, as described in this article, is the IMF’s special drawing rights or SDRs. The SDR is a form of world money printed by the IMF. It was created in 1969 as the realization of an earlier idea for world money called the “bancor,” proposed by John Maynard Keynes at the Bretton Woods conference in 1944. The bancor was never adopted, but the SDR has been going strong for 50 years.
This article describes how the IMF could function more like a central bank through more frequent issuance of SDRs and by encouraging the use of “private SDRs” by banks and borrowers. At the current rate of progress, it may take decades for the SDR to pose a serious challenge to the dollar.
But that process could be rapidly accelerated in a financial crisis where the world needed liquidity and the central banks were unable to provide it because they still have not normalized their balance sheets from the last crisis. In that case, the replacement of the dollar could happen almost overnight.
Individuals will not be allowed to own SDRs, but you can still protect you wealth by buying gold. That’s what Russia and China are doing.
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