The Dollar as the World’s Reserve Currency

The one advantage that the United States has over every other country is the dollar. It is the world’s reserve currency, what does that mean? Well, it means that every currency is “pegged” to the dollar. We price oil, cotton, and other commodities to the dollar. This advantage allows the the Federal Reserve the ability to continue print money, while keeping the interest rates down. This is what is happening now with the series of QE’s. We are now in the middle of QE2 or Quantitative Easing 2 where the Federal Reserve is buying U.S. bonds or buying the U.S. debt. This QE2 action devalues the dollar and monetizes the debt, something Federal Reserve Chairman Ben Bernanke said he would not do, but in reality is doing.

When a country continues to print money this causes inflation. The price of commodities rises because the value of the currency is decreasing. We are starting to see this happen in markets today. Look at the price of corn, cotton, sugar, oil, gold and silver as they are skyrocketing. As long as there is Quantitative Easing, these commodities will continue to rise. I believe we will see QE3 in the future because the government cannot stop printing money. If they stop printing the money, you will see the U.S. spiral in a “great depression” as never seen before.

The Federal Reserve is also keeping interest rates at or close to 0% and has been doing so for the past couple of years. This action cannot continue as the printing presses print money out of control. One day, the interest rates are going to have to rise to keep inflation in check. How much will they rise? I don’t know, but it will be noticed by all. We are following the same path as the Wiemar Republic in Germany, and just recently Zimbabwe. Inflation will sooner or later catch up to the actions of the Federal Reserve.

If the dollar loses it’s standing as the world’s reserve currency, it would be a disaster for the United States as this is the only reason that printing can continue without more destruction to the economy. Recently, there have been actions to decouple the dollar as the reserve currency. China and Russia decided to start trading in their own currencies, instead of the dollar when buying and selling from one another. And recently the “economic minds” met at Bretton Woods to discuss future economic plans. This summit held by billionaire philanthropist George Soros is focusing on the future of the world economic prospects, and one topic of discussion was the dollar as the world reserve currency.