One of the roles of the “world reserve currency” is its use as a primary currency of choice in settling international trade. This literally means that foreign trade, even between non-U.S. trading partners, is settled in U.S. Dollars. This is done advantageously by both trading partners; by the purchaser because dollars are readily available, and by the seller because the dollars can easily be used to buy something else on the international scene, like oil or other raw materials. When a reserve currency stops being the trade medium of choice, it stops…being the reserve currency.
So this Bloomberg article should worry you, since your ability to buy energy on the international market is absolutely central to your lifestyle:
- Sept. 8 (Bloomberg) — China and Russia plan to start trading in each other’s currencies as the world’s second-biggest energy consumer and the largest energy supplier seek to diminish the dollar’s role in global trade.
- “Given the risk to the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency,” Bhanu Baweja, global head of emerging markets fixed income, currency and credit research at UBS AG
- “Gradually the dollar is being eliminated from the foreign-trade settlement flows,” said Dariusz Kowalczyk, a Hong-Kong based senior economist at Credit Agricole CIB. “People are beginning to trade Asian currencies without intermediation via the dollar.”
And I just want to point out that, as I write this, gold is at an all-time high of $1272.00 per troy ounce.
Do the “Young Guns” have a plan that will deal with this? I’d very much like to hear it.