With an ever-increasing amount of national debt, recent inflation, and a bleak outlook for the future, the U.S. economy seems to be entering a rough patch. But as long as the U.S. dollar remains the world’s reserve currency, the economy can weather quite a bit. Unfortunately, the dollar’s days as the world’s reserve currency may be numbered.
The move away from the dollar has been a long time coming. And it could still be years, or even decades, before the dollar is dethroned. But every year brings new steps away from the dollar’s dominance in international trade. And the latest moves could benefit gold at the dollar’s expense.
Gold as Money
Monetary stability is vitally important when it comes to international trade, particularly for countries that do a great deal of importing and exporting. If you’re constantly accepting foreign currencies in international trade, you want to make sure that those currencies have a stable value, otherwise you could end up losing money due to that currency risk.
That’s one reason the dollar remains the world’s reserve currency, because it has retained a reputation for stability. When the Bretton Woods system was first established after World War II, that stability was the result of the dollar being at least partially backed by gold. Foreign nations were able to redeem their dollar holdings for gold if they wished.
The U.S. took advantage of that by creating more dollars, and other countries reacted by redeeming their dollars for gold, eventually resulting in President Nixon closing the gold window in 1971. But even though the dollar’s purchasing power has declined by 87% since then, it still remains one of the best world currencies in terms of its stability.
All fiat currencies today are no longer backed by gold or silver, and most freely float against one another on international exchanges. Despite the dollar’s massive devaluation over the decades, its performance is still one of the best among major international currencies, which is why it continues to maintain its dominant position as the world’s reserve currency. But that could be changing.
The U.S. government’s continued weaponization of the dollar and of the U.S. banking system, including the use of sanctions against countries that don’t go along with U.S. foreign policy, has had many countries looking at how to dedollarize themselves. It isn’t easy, as the U.S. dollar is the world’s most widely used currency. But gold could provide a solution.
Various competitors such as the euro, the yen, the British pound, and the yuan haven’t really made a dent in the dollar’s position. But now the BRICS countries (Brazil, Russia, India, China, South Africa) are reportedly discussing the adoption of a gold-backed currency to be used in international trade.
The BRICS countries are all among the top 10 in the world in population and in the size of their economies, and combined they make up a very large trading bloc. If BRICS were to adopt a gold-backed currency that was used for intra-bloc trading, it could seriously erode the dollar’s position as the world’s reserve currency. Add to that the fact that dozens of other countries want to join BRICS and you have the makings of a potential upheaval in the international monetary system.
The Timeline for Gold
Details for this potential new BRICS gold-backed currency are sparse, and there’s no guarantee that even the framework for a new currency will be agreed to this year. Still, the push is out there, and the threat to the dollar’s status seems to be growing all the time.
With the gold price once again pushing toward $2,000 and possibly threatening its all-time highs, the incentive to back a potential currency with gold is growing. And if a gold-backed currency ends up being adopted as a currency for international trade, it could give the dollar a run for its money.
The benefits of a gold-backed currency are numerous, depending on the framework surrounding its adoption. But among the most obvious is the fact that the units of a gold-backed currency couldn’t be created out of nothing, only an increase in gold backing could result in an increase in the currency in circulation.
That’s why the classical gold standard was so popular, because it allowed for currency stability that benefits manufacturers and traders. That currency stability has been lacking in the world monetary system for decades, and many people want to see it return.
The Benefits of Gold
It isn’t just traders and manufacturers that gain the benefits of a gold-backed currency however. Even ordinary citizens can benefit from the stability of a gold-backed currency. Gold backing of a currency prevents the kind of inflation that we’ve seen over the past few years, and can keep prices from spiking.
Investors and savers benefit from a stable currency too. A currency that constantly is worth less benefits debtors, allowing them to pay back their debts in devalued currency units. But it punishes savers, whose future dollars are worth less and less. Even with rising interest rates, inflation still takes a significant bite out of investment gains.
If the BRICS countries or a similar bloc of countries decide to adopt a gold-backed currency, it could boost demand for gold by making gold once again a backbone of international trade, and that could boost the gold price. Central banks are already buying gold at the fastest pace since the 1950s, and a gold-backed currency could provide additional impetus to those purchases.
Americans who own gold could see the benefits too, as rising gold demand and a rising gold price could significantly increase the value of their gold holdings. Many Americans who are anticipating the dollar’s eventual replacement with a gold-backed currency have started to add gold to their portfolios, with numerous options available to buy gold.
Among the popular gold buying options available today is a gold IRA, which allows you to use tax-advantaged retirement savings to purchase physical gold coins or gold bars. You can roll over funds from a 401(k), 403(b), TSP, IRA or similar account into a gold IRA tax-free, then use those funds to purchase physical gold.
Gold IRAs offer the same tax advantages as any other IRA account, the ability to protect your existing retirement savings, and the opportunity to diversify your portfolio with tangible physical assets. Goldco has helped numerous customers benefit from gold IRAs over the years, and with $2 billion in precious metals placements and thousands of satisfied customers, our commitment to customer service is second to none.
If you want to take advantage of gold’s potential future price growth, maybe it’s time to start looking into a gold IRA. Call the experts at Goldco today to learn more about how a gold IRA can help you secure your financial future.
Trevor Gerszt is the founder and CEO of Goldco, a precious metals dealer in Los Angeles. For more than 20 years, Trevor has sought out ways to help people build long-term wealth through the security and stability of precious metals and other alternative assets. Goldco is A+ Rated by the Better Business Bureau, a 5-Time INC 500 Winner and has countless 5-Star Reviews for its quality customer service, dependability and strong reputation.
© 2024 Newsmax Finance. All rights reserved.