What Happens When the US Dollar Collapses?
Astronomical public debt figures and rising inflation are bound to depreciate the global reserve currency.
The US Dollar is in danger. That statement alone is quite controversial in the financial sphere today. Despite the reassurances of many economists that the dollar is too big to fail, there remains a significant cause for concern.
The story of the US dollar and how we got here is a long one, and it’s not necessary for the point of this article. But the key takeaways are the following:
- The U.S. starts printing its Benjamins in 1861, and backs them with the gold standard,
- The Gold Standard: every paper note you hold is a glorified IOU note you redeem for a certain fraction of gold from the treasury,
- In 1971, the U.S. government decides tangible value is lame and gets rid of the gold standard completely. (Actually it was to curb inflation, among other things.)
- US Dollar becomes a currency backed by our collective trust in the weight of the United States.
Alright fine. But the U.S. Dollar is still too big to fail, you tell me. So was the Titanic in 1912 and the banks in 1929 and 2007, but I digress. Point being, nothing is too big to fail, which is why I will entertain the possibility of a U.S. Dollar collapse however unlikely it may be.
What can cause a currency to collapse?
The usual indicators of potential currency instability are high public debt, hyperinflation, and political instability. Need I say more? Well, the United States owes $34.1 trillion in public debt, and do keep in mind that this constitutes over 120% of the country’s gross domestic product. Regardless, the U.S. is too big to fail, right? Anyways, the Inflation Rate reached just over 8% in the U.S. last year (2% being the recommended dose), and prices don’t show any sign of decreasing. That’s okay though, the U.S.D. will be perfectly fine. Ah, and I shouldn’t forget to mention the political instability surrounding the U.S., from internal civil strife to global political decline.
The indicators all converge to signify the worst, yet the world and the U.S. itself seem to be motionless. The U.S.D. has undoubtedly done so much to help this world as a global reserve currency and as a facilitator for international trade (among other benefits). Although I may not be a qualified economist, I think I do recognize a worrying pattern when observing the U.S.D.
It seems, with all these factors joined together, that the only saving grace for the dollar is its special status as a global reserve currency. This is essentially enabled by the United States’ powerful global posture, and its ability to assert itself as the gendarme of the world. Through its projection of power, it gains the trust of many investors who view it as a stable country with a rather reliable currency.
This, of course, is jeopardized the moment American hegemony over the world is called into question. With the Euro quickly recovering from the Ukraine War shock, and the BRICS currencies threatening to merge into one common alternative, the existential menace to the dollar’s unique status as a global reserve currency ought to be duly examined.
Of course, I could only hope for this collapse to never happen. Indeed, the fall of the dollar holds nothing but chaos to this world, and the most damaged peoples will be those of developing nations.
Will the U.S.D. collapse?
The short answer is no, it will not. At least, it isn’t likely that it will, and thank God for that. However, despite its relative safety for the time being, worrying economic indicators should serve as a sign for competent authorities to take rapid action.
If the dollar is to extend its worldwide dominance for a few more decades, interest rates must be increased and government spending must be cut. Austerity measures are necessary for the stability and security of the global reserve currency. The U.S. may have had political backing for its currency in the past, but this is quickly fading today, which is why it must shift its weight back onto monetary and fiscal measures to protect its currency’s special status.
What happens after the fall?
It is difficult to gauge the gargantuan consequences that would result from a U.S.D. collapse. To put it mildly, our access to technology, food, and other necessities may be in grave danger, and the global financial system as we know it would collapse too. The sheer scale of the humanitarian toll this would take is difficult to convey, as many developing nations will find themselves unable to complete basic transactions to import daily necessities.
Of course, the BRICS might cover with an alternative reserve currency that could lessen the impact in some select countries. Although the concept of a BRICS currency is still highly theoretical and is very unlikely to be applied in the immediate future, it is important to take into consideration the East’s ability to compete again financially with the United States and its allies. The possibility of such competition is already worrying to many in the U.S. leading to harsh economic measures against China, Russia, and others in this bloc.
Moreover, there is a rather intriguing chance that we return to a gold-backed global reserve currency (perhaps under BRICS terms) as a way to combat the inflation aching the financial world today.
It is rather harrowing to acknowledge even a slight chance of a U.S.D. collapse. However, there is no denial that the U.S.D. drives forward on a rocky road, with fierce competition from BRICS and the European Union. In conclusion, nothing is too big to fail, and it is about time we stopped echoing that tired debunked mantra.
Hey there, it’s good to be back! Thank you for reading through to the very end. I hope you enjoyed this rather brief article on the U.S.D., it was quite fun to write. If you enjoyed this article, do consider clapping, sharing, and subscribing for more!
