The whole talk about the US dollar being the world currency reserve seems silly to me. Over the last decade the USD has been consistently loosing value to commodities. We can clearly see that with higher gold and oil prices. This trend will not change any time soon with ballooning debts and the money printing junkies running central banks all around the world.
What I find ironic is labeling the USD as the “world currency reserve.” It’s not like the world had a vote in the matter. Even if the world did have a vote for what currency to use as a reserve currency, what would you vote for? Your choices are as follows: USD, euro, yen, yuan, CHF, CAD or even a basket of currencies. None of the options above sound appealing considering they all based on the same flawed system of government monopoly fiat currency. Even if you put gold or oil on the ballet as an option for a world currency reserve, who would choose that? You might get 1% of the population voting for gold and they are probably the same 1% that actually own gold as money.
For now the USD is the world currency reserve because the world doesn’t have a choice or a vote in the matter. The US has shown its ability to use force when necessary to retain that supremacy, so no one better dare and try to challenge them. Many countries in the past have tried to bypass the USD for commodity trades such as oil. Iraq is a great example of what the US will do if you even consider undermining the reserve currency status. Back in 2000 Saddam Hussein stated he wanted to trade Iraq’s oil for euros and bypass the USD as a medium of exchange. Look what that got them a couple of years later, a false flag attack on your freedom to choose your reserve currency. Defy the USD and you will be attacked, your country will be gutted and innocent people will die. I guess this is the only way the US can keep its supremacy and control of the petrodollar trade, by force.
Ten years later and we are now in the same situation with Iran. The US and Western allies have placed economic sanctions on Iran and have locked them out of Swift banking system making it impossible for Iran to send or receive money by wire transfer. This attack on Iran’s finances is just another means of economic war and control asserted by western powers, but this time they may have gone too far. Bloomberg has reported that the US Obama administration is also threatening China, India and 10 other countries to cut down on their oil trades with Iran or face similar sanctions.
I guess the new western policy is now officially “do what we say or you will get locked out of our financial system.” I hope people around the world realize that this is not a positive sign for the global economic outlook and this is exactly why we suggest holding gold. If Swift banking starts shutting down, then international banking also starts shutting down, this means more of a slowdown in international commerce.
The world will have to find other means of settling trade amongst each other and this is already being done by many Asian countries. There are many agreements in place which will allow for exchange of goods and services in other currencies besides the USD. There is already a lot of talk and action taking place about replacing the USD as the world currency reserve. Being the world’s largest holder of gold, the Indian government wanted to trade gold for oil with Iran. China is on its way to making the yuan a reserve currency to be used with their Asian trading partners. It seems like the world is finally waking up and realizing that having the USD as the only world currency reserve is detrimental to their financial wealth and they need to diversify quickly.
At TDV, we often talk about currencies collapsing to their intrinsic value of zero, and some day soon that may happen. The threat of closing down Swift banking could be just another trigger which leads us down this path to zero. One day you may wake up and be thankful that you are part of the 1% that chose gold as a store of wealth. If and when currencies collapse, you will be glad to know that your vote in gold as your world currency reserve actually mattered. It will be the only currency that will be accepted all around the world unconditionally. I can’t say that about the fiat currencies issued by the over 150 Central Banks around the world.
Since 2012 is a US election year, the citizens of the US get to vote for a political figurehead to manage their terminal drive down the road to serfdom. Choosing the lesser of two evils is not much of a choice in my opinion. The rest of the world who relies on the USD as a reserve currency does not get to vote on US politics and the value of the USD. So we have no say in effecting policy with regard to what the value the world reserve currency will be worth, that is a power that only central bankers are given. The only thing you can do to make a difference is to vote with your dollars. Trading in the paper USD and voting for hard assets which are out of the bankers control is the only vote that matters. For thousands of years, people have voted for gold and silver as their reserve currency. Make 2012 the year you choose to not vote for a political leader, it won’t make a difference. Instead, think long and hard about what reserve currency you want to own in order to protect yourself from bankers and politicians, it may be the only vote that matters.