Historically, Global Reserve currencies have a lifespan of about 100 years and The dollar as we know celebrates it’s 110th birthday in 2024…
Is the US Dollar facing a collapse in 2023? Are we facing a currency crisis? Is dedollarization a threat?
In this video we will look at 5 critical dates in the life of the US dollar, from it’s birth in 1914 to present day.
These dates that may provide you with insights on what kind of time remains for the leading Global Reserve currency.
Our first stop is in 1914, with the birth of the US. Dollar. While the use of paper Currency in the United States dates back to Colonial America, the Dollar as the currency we know today was first printed in 1914. This was one year after the passing of the Federal Reserve Act and the simultaneous establishment of the Federal Reserve as the Nations central bank.
“the dollar as we know it today was first printed in 1914. Printing began a year after the establishment of the Federal Reserve as the nation’s central bank with the passing of the Federal Reserve Act.” -Investopedia.com
At this point in time, the US dollar was backed by the gold standard, meaning each dollar was tied to a certain amount of gold, thus anchoring and stabilizing it’s value.
In 1933 President Franklin D Roosevelt transitioned the dollar from the Gold Standard to a Limited or Quasi Gold Standard.
“The Thomas Amendment to the Agricultural Adjustment Act of 1933 granted authority to the President to alter the gold content of the dollar, with power to reduce it to 50% of its previous value.” (Fas.org p. 10)
What happened was that after FDR’s initial and immediate inflation of the price of gold from $21 to $35 per ounce the government did not allow the price of gold to budge from $35 per ounce… thus stabilizing the value of US dollar for another 40 years.
In 1944 the when Bretton Woods Summit took place in New Hampshire. It was here that the US dollar became the World’s Primary Reserve Currency.
“The [Bretton Woods agreement] was reached by 730 delegates, who were the representatives of the 44 allied nations that attended the summit.” -corporatefinanceinstitute.com
The International Monetary Fund was Established, alongside what is now known as the World Bank.
“Under the Bretton Woods system, the dollar was pegged to gold and most other currencies were pegged to the dollar. As a result of this arrangement, dollars were used as the main intervention currency and, hence, reserve currency.” -treasury.gov
By the late 1960’s, the Gold Standard was becoming difficult to maintain. As previously mentioned, the government held the price of US gold at $35 US dollars per ounce. This fixed price worked, because from 1933-1974 it was not legal to own gold of any significant amount or exchange dollars for gold from the Federal Reserve. This prevented a US population from making a run on gold at that bargain price of $35 US dollars.
However, it did not prevent the international community from doing so. It was at this point in time legal to exchange gold for US dollars in the international, “free market”:
“Although there was no private market for gold in the United States, such markets did exist
abroad.” (FAS.org Pg. 13)
“Foreign central banks were willing to hold US dollars because, at the time, they were readily convertible into gold upon demand. If the free market price rose above $35/ounce, central banks had the incentive to redeem US dollars for gold to then sell the gold for a higher price in other markets. Throughout the 1950s, the US Treasury experienced a continuing drain on its gold holdings.” (libertycoinservice.com)
In light of this problem, in 1971 the Nixon Administration eradicated the Limited gold standard and by 1976 “the definition of the dollar it terms of gold was removed
from statute. The monetary system officially became one of pure fiat money.” (fas.com)
Fiat Money refers to a currency that is not backed (or anchored) by the value of any physical commodity (Investopedia).
At this point, with no anchor, the dollar was left to “float”. And float it did: the price of gold went from $35/oz in 1970 to $875/oz by 1980 (vaulted.com).
But why did the US dollar not crash completely back in 1970?… and not only not crash, but it still remains the world’s leading currency 60 years later?
What took place in 1973 is a lesser known fact about the US dollar. And that was that president FORD settled the Petro Dollar agreement with Saudi Arabia:
A simple summary of The Petro-Dollar Agreement: Is that that US promised safety to global suppliers of oil (Saudi Arabia and ultimately all OPEC members), in exchange for the promise that that oil would be sold in NO OTHER denomination than the US dollar.
The nations of the world were required to exchange their local currency for US dollars before they could purchase the oil they needed.
As a result, the demand for oil has stabilized, in a large part, the value of the dollar for more than 60 years.
“the American currency now contributes to almost two-thirds of the international economy. It is the reserve currency for most central banks worldwide” (www.wallstreetmojo.com)
“That pace would generate annual global petrodollar supply of more than $3.2 trillion a year…” (investopedia Petrodollars: Definition, History, Uses)
In present time this stimulates the demand for nearly $3.2 trillion US dollars annually as world nations flock to exchange local currency for the US dollar in order to satisfy a growing demand for energy.
2023: China and Brazil Abandon the petrodollar standard.
2000’s: US Debt Spiral
For 20 years the United States has been printing US dollars to cover for an unprecedented debt spiral. National debt skyrocketed from $9 TRILLION in 2000 to $31 Trillion in 2022. Stability being a key to maintaining face on the international stage, things are not looking good.
2022: Inflation and Interest Rates Frustrates the International Community
In 2022 this debt spiral culminated in historic levels of inflation. Which the Federal Government attempted to control through the raising of interest rates. However, higher interest rates make it more expensive for other countries to do business in the dollar… paving the way for what we witnessed on March 29th. 2023.
“The deal, announced Wednesday, will enable China and Brazil to carry out trade and financial transactions directly, [in local currencies] exchanging yuan for reais – or vice versa – rather than first converting their currencies to the U.S. dollar.” (FOX NEWS)
There is little or nothing to back the value or authority of the dollar unless the petro-dollar standard is upheld. What happened with China and Brazil on March 29th, 2023 will only propel the dollar down an already dismal trajectory.
By all appearances the dollar is in it’s final days. The timeline, no one knows, And in all reality it would be better for you and for me if the process took 10 years rather than 10 days. Prepping for a shift away from a major world currency will take time. And realistically, we could be looking at a slow burn…
If you want some insights on the decisions I made in light of a currency crisis >>> Watch this video next.
(Brief History of the Gold Standard in the United States
Craig K. Elwell)
Wall Street Mojo, Petro-dollar