Rachel’s Note: Rachel here, managing editor of Cycles Trading with Phil Anderson.
Today, we have a special guest essay from our Rogue Economics colleague, Dr. Nomi Prins.
Like Phil, Nomi is a best-selling author. She’s also a financial journalist and former global investment banker who reached the upper echelons of Wall Street before setting out to demystify the world of money.
Right now, Nomi says the dollar is under threat. But it doesn’t originate with China, Russia, or any foreign power. The single biggest threat is domestic – from within our own borders.
And on Wednesday, June 21 at 8 p.m. ET, she’s holding a special briefing called Countdown to Chaos.
She’ll tell you about ways to diversify your portfolio, your money, and your investment outlook as this trend unfolds.
You can sign up with one click right here.
If you’ve been following the media lately, you’ve seen news headlines like:
“Is the U.S. Dollar’s Dominance Under Threat?” – Morgan Stanley
“Threats Mount to Dollar’s Role as World’s Reserve Currency” – Barron’s
“The dollar could be facing an existential threat” – Investors Chronicle
These are just a few examples of the sentiment surrounding the U.S. dollar right now.
And you might be having a hard time separating fact from fiction…
But the truth is, the U.S. dollar is under threat.
All over the world, trust in the dollar as the currency for payments and reserves is slowly eroding.
From Brazil to China, foreign nations are beginning to turn away from dollar-denominated assets.
This trend isn’t new. In fact, it’s been in motion for the past few years.
That doesn’t mean the dollar is going away as the world’s dominant currency. But it does put your money on shaky grounds. And it means you should pay attention to the wars being waged against the dollar.
Even so, there’s a silver lining for investors who position themselves early for the uncertainty that’s coming…
Trust Is Eroding
In March of last year, the Fed began its series of quick interest rate hikes.
These hurt the value of Treasury bonds that U.S. banks held for liquidity purposes. That created massive paper losses.
But when a large number of depositors take their money out at the same time, these paper losses turn into real ones.
We saw that first with the collapses of Silicon Valley, Signature, and Silvergate Banks. Then, the major European bank Credit Suisse failed shortly afterwards. First Republic Bank was the next one to go belly up. And PacWest looks like it’s on the verge of collapse.
When depositors get really worried about the safety of their money, that can cause a domino effect in the banking sector.
Yet, rising interest rates didn’t just trigger volatility in the banking sector. They contributed to an eroding of trust in the dollar as a payment system globally.
Higher interest rates made borrowing U.S. dollars too expensive. That’s especially true for emerging market countries. It makes paying back their debts even more challenging.
As a result, collectives like Brazil, Russia, India, China, and South Africa (the BRICS) and other countries are increasingly trading with each other using non-dollar currencies.
President Lula of Brazil, the world’s 10th-largest economy, announced his intent to reduce Brazil’s reliance on the dollar in foreign trade during his recent visit to China.
India developed a rupee payment system that enables trade settlements away from the dollar. Plus, Indian oil refiners are now using the UAE’s dirham to buy Russian oil, instead of using the U.S. dollar due to sanctions against Russian oil.
Argentina, on the other hand, just announced that it will start paying for Chinese imports in yuan rather than dollars.
You see, Argentina is struggling with inflation. In April of this year, it soared 108.8% year-on-year. This is the highest level since 1991 and after rising 104.3% in March. And it’s losing dollar reserves at a fast pace.
At a mere $35 billion, Argentina’s central bank reserves dropped to their lowest level since 2016. In fact, net reserves are almost completely depleted if gold is not taken into account.
The South American country hopes that the currency deal will ease its diminishing dollar reserves. It also hopes this will lessen its dependence on the U.S. dollar.
All of these examples point to how countries are speeding up their efforts to turn away from the dollar. But there’s more to the story…
Foreign Governments Are Dumping U.S. Treasury Bonds
U.S. banks are failing… borrowing costs are rising…
For policy leaders around the world, that’s a problem. They’re afraid of further losses. And they’re looking for a back-up plan that doesn’t put them at the mercy of the U.S. dollar.
That’s why we’re seeing a collapse in foreign holdings of U.S. Treasury bonds.
In fact, foreign treasuries and governments were dumping U.S. Treasuries throughout 2022. At the same time, the Fed was raising rates aggressively.
That is not coincidence. It’s not a conspiracy theory, either. You can follow the money.
Just look at China, for example. It’s the world’s second largest economy. And it holds the most U.S. Treasuries, second only to Japan.
After the Fed started hiking rates like year, China cut its holding of Treasuries to its lowest levels in more than a decade.
China sold nearly $154 billion in U.S. Treasuries between March 2022 and January 2023 alone.
And it’s not just China. Japan, which hold the most Treasuries, sold $125 billion during that period.
Pushback Against the Dollar Is Gaining Steam
This trend isn’t limited to the financial crisis of the past year. It’s a sign of a global push to move away from the dollar.
Countries’ feelings towards the dollar are souring. We can get a good sense of that by looking at where the dollar stands in foreign reserves.
In 1999, central banks held 70% of their foreign reserves in U.S. dollars.
That’s the year the euro came on the scene, meaning the dollar had less competition.
Today, central banks hold about 58% of their foreign reserves in U.S. dollars. The rest is in euros (20%), British pound (4.9%), Japanese yen (5.5%), and Chinese yuan (2.6%).
What that means is that the dollar is still king. It’s the dominant reserve currency by almost three times the next largest currency, the euro.
But as we explained above, the trend to undermine the dollar is underway.
Other governments want to control their own economic destinies.
A strong dollar makes their own currencies weaker. They’ve seen the financial turmoil that comes with that.
When the dollar is strong, it’s harder for them to repay dollar-denominated debt and to trade for goods and raw materials.
Just in 2023, countries like Egypt, Pakistan, and Ghana had to ask the International Monetary Fund (IMF) to bail them out. They had borrowed heavily in U.S. dollars. And paying it back meant a squeeze on what they could spend at home.
For them, moving away from the dollar is a matter of economic survival.
Second, other governments are losing trust in the U.S. on a financial and geopolitical level.
Political tools like sanctions and embargos were the first to create distrust. Then bank failures, high interest rates, and economic uncertainty made business with the U.S. a financial liability.
The economic sanctions placed on Russia in response to its war in Ukraine serve as a reminder to global leaders risking political friction with the U.S.
That’s why major trading partners like China are taking action. This year, China stuck a deal with Brazil to pay for trade and financial transactions in their own currencies instead of using dollars.
Now, to be clear, King Dollar won’t lose its status overnight. Global investors and institutions still see the dollar as the dominant currency.
But it’s still important to understand that the dollar’s position is not what it used to be.
These moves are still small and gradual. It’s like a death by a thousand cuts.
How to Protect Your Money
Here’s the good news…
There are ways to diversify your portfolio, your money, and your investment outlook as this trend unfolds.
Remember, one of the main reasons for less confidence in the dollar is the instability of the U.S. banking system.
So you should avoid investing or depositing your money in banks that are at risk of failure.
To help you protect your wealth, my team and I dedicated hours of research to find out which banks could be the next to collapse.
We prepared a new special report with our findings, called The 722 Bank Bombshell: Is YOUR Bank Next to Fail? It reveals seven banks that are on the brink of failure.
This level of research is normally reserved for our paid subscribers. But this situation is too dire for me to keep this report behind a paywall.
See, in the days ahead, we could see a run-on dozens of banks… and a scramble to move wealth like you wouldn’t believe.
And as I’ll explain in my Countdown to Chaos emergency briefing on Wednesday, June 21 at 8 p.m. ET, it’s all set to unfold starting at the end of July.
The crisis that’s coming could mean huge losses for every American.
If you don’t prepare today, your nest egg could be at risk. I don’t want you to be blindsided.
So please, take a moment today to upgrade to VIP. When you do, my team will send you my new special report, The 722 Bank Bombshell right away.
Regards,
 |
Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. As countries around the world begin to turn away from the dollar, I’ve found evidence that the Fed is set to enact the greatest monetary transformation in the history of America.
Between now and the end of July, the Fed will unleash a technology that gives the elites new powers – for the first time ever – to track every dollar you spend…
What could our government do with the ability to track every dollar? To identify:
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Who’s spending it…
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What they’re buying…
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Who they’re buying from…
It’ll be the end of the dollar as we know it.
But folks who know what’s coming between now and July 31 could have the opportunity to turn as little as $100 into $5,000 or more.
That’s why, at my emergency briefing on Wednesday, June 21st, at 8 p.m. ET, I’m going to show you exactly what’s about to happen.
I’ll also reveal one way you could profit from the chaos – with one virtually unknown investment that has a history of gains as high as 50x.
So if you haven’t yet, be sure to upgrade to VIP today. It’s the best way to ensure you get the most out of my briefing on June 21.