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Is the World Moving Away from the US Dollar?

What is one to make out of the current state of the United States economy that is raising alarm bells around the world for just about anyone looking beyond the stock market at this moment in time. As a matter of fact, the U.S. Dollar hit a two-week low recently as demand for safe assets ebbed as investors looked to recover from this year's "Covid-19 pandemic" driven by the U.S. government’s significant fiscal and monetary stimulus.

The U.S. dollar index fell to a low of 90.37 points for the first time this month, and in the most recent trading, it traded at 90.39, and was suffering losses for the third session. The Euro, on the other hand, rose to $1.21, boosting its gains for the third day, while the Pound returned to a three-year high of $1.382 before trading at $1.381.

On the other side of the globe, China and Russia are pulling their support for the U.S. Dollar. Even Europe is considering its options to strengthen the Euro to become more independent from the U.S. Dollar.

In the cryptocurrency space, Bitcoin has some gains recently to a new high of 48,216 dollars overnight, after Tesla’s Elon Musk announced an investment of $1.5 billion in the leading cryptocurrency. What it suggests is that Bitcoin is challenging the assumption that investment is not safe if transacted in cryptocurrency. This could not be more obvious during the Federal Reserve’s Janet Yellen’s congressional hearing. She called the digital currency, Bitcoin a “highly speculative asset” that “doesn’t constitute legal tender.”

While I agree with Patrick Hauser, broker at Crypto Broker’s argument that the Tesla investment “does not completely rearrange the cards, but rather reinforces the idea that Bitcoin has its place in corporate vaults,” signs of moving investments into the Bitcoin space are becoming more realistic today than a few years ago.

While many Wall Street speculators want you to believe otherwise, the fact remains that One Bitcoin is now worth more than double the price of gold, with a 150% increase in its value this year alone. Yet the meteoric rise in the Bitcoin price, along with that of other digital currencies such as Ethereum—whose price has multiplied 25 times in 2017 so far—has recently sparked fears that the burgeoning market has become overheated, and may be in a bubble.

Against this backdrop, I argue that the decline of the U.S. Dollar, given the amount of debt the U.S government is generating thru Quantitative Easing is raising concerns with investors mainly overseas. The two main domestic issues that negatively impacted the value of the U.S. Dollar are (a) the stimulus package and (b) the U.S. government’s inability to contain the Pandemic.

Uncertainties related to the $1.9Trillion additional stimulus package is impacting the value of the dollar because the government has to print more money. Mind you the economic rule: The more money you print the weaker the currency becomes.

Equally important, the political infighting between the Republicans and Democrats is another factor underlining not only the dysfunction in Washington, but also the impact on the value of the dollar. Of note: Some Republican Senators, against their own party, have objected to $1trillion coronavirus relief proposal. On the other hand, the Democrats are pushing for an extension of a $600-per-week coronavirus jobless benefit.

The question we need to ask: What will investors think of the weaker dollar? Could this explain why countries like China and Russia are gradually moving away from the U.S. Dollar? Could this explain why the European Union Finance Committee is considering its options to strengthen the Euro to become more independent from the U.S. Dollar? Mind you that whenever there is a weaker dollar, the price of Gold goes up. The reason is when the value of dollar decreases relative to other currencies throughout the globe, the price of gold tends to rise in dollar terms.

Interestingly, Stephen Roche, an economist and former bank chairman, was criticized six months ago for predicting that a crash of the U.S. Dollar is inevitable.

Apparently, many financial stakeholders and observers did not like to hear Roche’s predication. They might even be in denial about the reality as is, if I may add.

David Oualaalou is a Geopolitical Consultant, Award Winning Educator, Veteran, Author, and former International Security analyst in Washington, D.C.