US dollar as a subject can easily cause some of my investors to feel overwhelming sadness, happiness, anxiety, or panic. Every few years, events conspire to thrust the de-dollarization debate back on the spotlight. If you are still expecting a collapse of the US dollar, you should stop. Any reports of the dollar’s demise are greatly exaggerated.
The US dollar is too dominant. It is the only game in town. China or Russia is not a big reason to threaten the greenback. China has certainly accelerated its internationalization process but this will take some time. We are still a long way (decades) from a scenario where the dollar is supplanted as the world’s reserve currency.
It would also require a consensus among many countries and could lead to a period of global economic instability during any such eventual transition. Of course America cannot take its key role in global capitalism for granted.
The depth and size of the US dollar as an investment, as a benchmark for financial futures, as a price for all major commodities and as a reference point for foreign exchange all backed by trusted institutions, is unchallenged.
If the greenback was taken out of the equation, many things such as global trade, lending and commerce would grind to a standstill. There is no back-up and we are talking about the way the world works.
Most of our assets are denominated in the dollar. During periods of a strong US dollar, times are always better for our investors because of the additional forex gain from our underlying investments based in the dollar.
During periods of a weak dollar, the returns from the investments are more than enough to offset the short-term forex volatility and continue to generate long-term wealth. It is also time to buy cheaper dollars as we get “more” for our local money.
Forex moves always play a subordinate role in our portfolio management. Once you start speculating on how a base currency will move your portfolio in the short-term, you are basically gambling. Can you become rich from gambling?
The US dollar Index rallied for eleven consecutive weeks into the end of Q3. This is the longest advance since 2014. I look for the outperformance to moderate in the coming weeks or months in a consolidation.