Towards the inevitable decline of the dollar?
In the last five years is spoken increasingly of the need to change the paradigm of global currency. Economists are increasingly confident about the decline of the U.S. dollar whose main disadvantage is its strength illusory.
In an article published in the Russian site Slon.ru, Andréi Diachenko, Alfa Capital Portfolio Manager, argues that the era of the dollar is coming to an end.
Dyachenko refers in his article to the Trade Weighted Index of the U.S. Dollar (Trade-Weighted U.S. Dollar Index) that shows how over the last 30 years U.S. fed with his own hands the growth of developing economies, such as the dollar strengthened against all currencies, making these economies competitive. The bubble burst ‘dot com’ associated with the growth in the economic values associated with Internet companies in 2000 triggered the search for new investment objects outside the United States. For 2003 this mission finalized its trend and gained widespread recognition in the form of BRIC. For 2007 there was no way to stop this trend. And later the crisis of 2008 exploded.
The stability of the dollar. A mirage?
EE.UU. was the first of the large economies that entered into the active phase of the crisis, becoming a breeding ground for distribution. However, investors remained confident in the dollar, and the demand was high already, that the engine of growth of the American currency does not reside only in the relative stability of the US economy, but also in the weakness of others, such as the zone euro or Japan.
A situation was formed in which the US dollar supports from both sides: on the one hand, by the strengthening of the US economy and on the other, by the evasion of risks in economies at risk,” explains Diachenko.
Many investors expect that in September the US Federal Reserve (Fed) reduce the programme of quantitative easing, which will lead to the reduction of the supply of dollars in the market, which in turn will lead to an excessive demand for dollars.
Meanwhile, the reverse situation to continue with easing program would mean that the U.S. economic situation it is not as good as they try to present it, which would also cause the demand for safe financial instruments such as U.S. Treasury bonds causing in turn the demand for dollars creating the preconditions for a crisis.
“So, it makes sense to make a place in a lifeboat before everyone jumps to find a safe place,” advises Dyachenko.
The gold. Better than the dollar?
In general, it is considered that the current U.S. economic policy is a path to the gradual collapse of the dollar.
Thus, former Congressman Ron Paul warned in one of his last interviews on CNBC that if the U.S. continues its current course, the dollar will collapse, and gold, literally, not will have price.
“Eventually, if we are not careful, will go to infinity, because the dollar will collapse completely,” he said.
“Whenever we have excessive spending and excessive computerized money, will see a rise of the gold”, stressed.
- Erick Gálvez