Jim Rickards: The Dollar Will Die with a Whimper, Not a Bang

Jim Rickards has written this new article which argues that those expecting the US dollar to have some kind of sudden collapse in value may well be wrong. Instead he says that if history is a guide, the US dollar is more likely to lose value steadily over time. He notes that this may cause many people to be unprepared for the loss of value if it does happen slowly over time. Below a few quotes from the article.

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"The same force that made the dollar the world’s reserve currency is working to dethrone it.

July 22, 1944, marked the official conclusion of the Bretton Woods Conference in New Hampshire. There, 730 delegates from 44 nations met at the Mount Washington Hotel in the final days of the Second World War to devise a new international monetary system.

The delegates there were acutely aware that the failures of the international monetary system after the First World War had contributed to the outbreak of the Second World War. They were determined to create a more stable system that would avoid beggar-thy-neighbor currency wars, trade wars and other dysfunctions that could lead to shooting wars.

It was at Bretton Woods that the dollar was officially designated the world’s leading reserve currency — a position that it still holds today. Under the Bretton Woods system, all major currencies were pegged to the dollar at a fixed exchange rate. The dollar itself was pegged to gold at the rate of $35.00 per ounce. Indirectly, the other currencies had a fixed gold value because of their peg to the dollar.

Other currencies could devalue against the dollar, and therefore against gold, if they received permission from the International Monetary Fund (IMF). However, the dollar could not devalue, at least in theory. It was the keystone of the entire system — intended to be permanently anchored to gold."

Click here to read the full article

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My added comments:

So far those calling for a huge (and sudden) drop in the value of the US dollar have been wrong although the dollar is far below its historic highs. Lately, the dollar has staged a strong rally up to near the 100 level on the US dollar index. It fell back from that level below a key support level at 95, but has since rallied back up above that level. 

Despite the strength of the dollar so far, there are still many who are calling for a big drop in the dollar and they remain convinced it will happen. Peter Schiff thinks it will drop sharply at some point.

The US dollar index is one of the keys we watch here that could clearly impact monetary system change. If the dollar does drop in price (slowly or quickly) it will mean the dollar is losing its status as the leading global reserve currency. Many believe that the inclusion of the Yuan into the SDR currency basket will be a signal that the decline is underway. A loss of sole global reserve currency status by the US dollar is, of course, is a significant event related to the global monetary system if it does happen. I should point out however, that some sources told me last year that the dollar looked strong when many were forecasting a sharp drop. They turned out to be correct. 

I think that until the general public becomes more convinced that the risks to the system are being managed successfully, we will continue to see a lot of concern about the future of the US dollar. Increased awareness/transparency of that process would be helpful, but may not be forthcoming. People can only evaluate things based on the information made available to them.We will just continue to follow it here with an open mind and see what actually happens.