What Happens if the United States Loses Its World Reserve Currency Status?
Rebecca Holcomb, Wealth of Geeks, 9/17/22
Imagine, if you will, it’s 2025, and the world is still in the grips of crippling stagflation. Prices are soaring, and a recession has killed off countless jobs. The world is looking for answers, and the United States isn’t offering the right ones.
As the BRICS collaboration, of Brazil, Russia, India, China, and South Africa, gains steam in economic and financial sectors and creates ex-US financial pathways, there’s a real possibility that the United States could lose its status as the world’s reserve currency.
Sanctions, What Sanctions?
As the war between Russia and Ukraine continues, Russian President Vladimir Putin seems unphased by United States sanctions. Meant to hinder his ability to access goods and services and hopefully change his behavior; unfortunately, for the US, it’s not working.
Russia is a big player in BRICS and is making allies of countries like Turkey as the those nations consider adding several other independent states to their list of collaborators. This special set of circumstances has allowed the Russian President to largely step around sanctions placed on him and his country by the US.
Meanwhile, there’s been some serious blowback in revenue when considering these sanctions. In 2021, Russia was a top-40 export market for the US. In February of 2022, the US exported an estimated $497.5 million in materials to Russia in the form of heavy equipment, aerospace technology, healthcare, electrical equipment, and vehicles. By March of 2022, that revenue had dropped to $101.1 million and by May to an even lower $77.4 million.
Even considering special General Licenses handed out by the US Treasury Department, deeper restrictions imposed in April of 2022 slashed that incoming revenue to a measly $57.99 million in June 2022.
Where Are We Headed?
As the world suffers through inflation, recessions, and stagflation, countries are looking for a leader. Who will stand up and fix the major economic issues facing just about every nation in the developed world?
With China pushing to institute the Yuan as a new world reserve currency, a power struggle between the east and the west is happening, and the undertones are reverberating throughout the world.
In 2015 China took its first steps in setting itself up as a player in the global economic market by creating its own ‘World Bank.’ The New Development Bank centered in Shanghai is a multi-billion dollar investment by the BRICS nations to circumvent the US and IMF.
Leading countries, including Britain, Germany, Australia, and South Korea, signed up to join the New Development Bank, effectively leaving only the US and Japan on the outs.
As Russia continues its war with Ukraine, the US and China butt heads over Taiwan, and China struggles with declining credit. The Asian Development Bank (ADB) has reportedly refused to continue to lend to China after 2025, slashing its lending to $7.5 billion between 2021 and 2025 from a previous $9 billion.
As the largest stakeholders in the ADB, Japan and the US spar with China over their threats to Taiwan. But it seems as if the ADB might be bowing to outside pressure to cut off lending to the world’s second-largest economy.
China deals with its credit and housing issues. The US vowed to protect Taiwan should China decide to invade the island nation. There are some serious complications to this dynamic, however. While officially an independent state on paper, Taiwan isn’t recognized by the United Nations as such. China deems Taiwan a rogue island that needs to come back under Chinese control. The 23 million residents of the island feel quite differently.
With tensions strained between the US and Russia and the US and China, could this entire economic and political combustion lead to WWIII? It’s entirely possible, especially if China decides it has no choice but to invade Taiwan.
China flexed its military might in large-scale drills after both Speaker Nancy Pelosi and Senator Ed Markey and four other politicians touched down in Taipei on separate visits.
China, saw the delegations as ‘US meddling,’ and accused Taiwan of undermining peace. China’s Defense Ministry said, “The Chinese People’s Liberation Army continues to train and prepare for war, resolutely defends national sovereignty and territorial integrity, and will resolutely crush any form of ‘Taiwan independence’ separatism and foreign interference.”
Joseph Wu, Taiwan’s foreign minister, responded, “Authoritarian China can’t dictate how democratic Taiwan makes friends.”
The US Can Still Suffer
If China goes to war with Taiwan, it would mean deep economic waves for the US. But if China manages to usurp the US and become the world’s reserve currency things get really bad. Virtually overnight, the US Dollar would become worth paper it’s printed on. Its purchasing power, which has been slipping for some time now, would bottom out.
Not to mention all the US debt that China holds could come due, devaluing the dollar that much more. What does that mean for the average citizen? It means that your paycheck, which you poured 40 or 80 hours of your time and labor into, is worth pennies instead of dollars.
Affording basic necessities like food, water, shelter, and clothing become obstacles and, in some cases, insurmountable problems. There’s no ‘rainy’ day fund to save toward that trip to Disney World or a trip to the beach. It’s grinding day in and day out just to afford a meal.
Preparation Is Key
We’ve all seen and chuckled at the doomsday preppers who flood YouTube with their ‘Top 10 Ways to Find Food in the Wild.’ But what if they know something you don’t? It’s not just ‘preppers’ who are warning people about the coming financial doom headed for the US.
Market analysts and financial experts are reading the signs and saying nothing good is headed our way anytime soon. In fact, most think things will get a lot worse. Do you have a strategy if the US loses its world reserve currency?
Thankfully there are some key areas to cover when choosing to get things in order. First, cover your financial assets. Investments and anything tied to the stock market are tied to the US Dollar. Your stock portfolio and 401K plans are all in fiat currency. The minute the US Dollar loses its value, your portfolio will tank.
The best way to preserve your wealth is to convert your portfolio and any excess liquid assets into physical gold and silver. Owning physical gold and silver is the only way to protect your purchasing power if the dollar does bottom out. Unfortunately, investing in commodities is not enough to save your wealth as it’s tied to the stock market and, therefore, the dollar.
Outside of investing in gold and silver, find ways to protect your home. Energy access, barter ability, security, and food and water access are essential to preparing should the dollar become invaluable.
Whatever debt you have now will follow you into a currency reset. No matter the world reserve currency, you’ll still owe your mortgage, credit card, car, and college tuition. The big difference is that those dollars will now be worth mere pennies. It will be two, three, or even ten times as hard to pay for anything, including food, water, shelter, etc.
Those Who Fail to Plan…
Have a plan in place for those vital basics. It will be an advantage for your family should the worst actually happen. The time to start stocking up is now. Purchase shelf-stable food items, including milk. If you can grow food on your land, start doing so. If you can fence your property, do so. Can’t afford modern security measures like cameras and metal window bars? Place menacing-looking plants around your property to deter anyone from attempting to come onto your property uninvited.
It’s not easy to look at American society and think anything’s really going to change. But the signs of the times are everywhere for those who know where to look. Things are going to get worse before they get better. How much worse? No one can really say until we’re there, but it’s certainly ideal to be prepared should the worst happen.
Suppose the US Dollar loses its world reserve currency status and becomes virtually worthless overnight. In that case, people will feel much better about their circumstances if they have a six-month store of shelf-stable food, access to clean water and energy – especially if you work from home and need the Internet to do so – and an ability to barter for things they can’t produce or stockpile for themselves.
And never forget that any skill set you have is also a bartering tool. If you can build, grow food, fix cars, etc., those skills become a way for you to provide for yourself and your family. Hone them! Making yourself invaluable is a great way to ensure you can protect and provide for your loved ones in times of crisis and a highly devalued dollar.