Moving away from the US Dollar: Is it inevitable?
The state of the US economy is raising alarm bells around the world for just about anyone looking beyond the stock market right now. In fact, the US dollar hit a two-week low recently as demand for safe assets receded as investors looked to recover from this year's "Covid-19 pandemic" driven by significant fiscal and monetary stimulus.
The dollar index fell to a low of 90.378 points for the first time this month, and in the most recent trading, it was trading at 90.398, and was suffering losses for the third session.
The Euro, on the other hand, rose to $1.2126, boosting its gains for the third day, while the pound returned to a three-year high of $1.3827 before trading at $1.3818.
Similarly, China and Russia are pulling their support for the US Dollar. Even Europe is considering its options to strengthen the Euro to become more independent from the US Dollar.
In the cryptocurrency space, Bitcoin has some gains recently to a new high of 48,216 dollars overnight, after Elon Musk’s Tesla announced an investment of 1.5 billion dollars in the leading cryptocurrency. What this 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.”
I agree with Patrick Hauser, broker at Crypto Broker, who argues 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 is more realistic today than a decade 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—has recently sparked fears that the burgeoning market is overheated and now may be in a bubble.
Against this backdrop, I argue that the decline of the US dollar, given the amount of debt the United States 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 US dollar are attributed to two main factors: The stimulus package and the United States Government’s inability to contain the Pandemic.
Uncertainties related to the additional stimulus package $1.9 trillion is affecting the value of the dollar because the government has to print more money. The more money printed, the weaker the currency becomes.
Equally important, the political infighting between the Republicans and Democrats is another layer of not only the dysfunction in Washington, but also the impact on the value of the dollar. Interestingly, some Republican Senators have objected against their own party, to the $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 to ask is: What will investors think of the weaker dollar? Could this explain why countries like China and Russia are gradually moving away from the US dollar? Could this explain why the European Union Finance Committee is considering its options to strengthen the Euro to become more independent from the US Dollar? We know that when the dollar weakens, the price of gold increases in value. A decreased dollar value has a global impact, as other countries experience the reduced value relative to other global currencies.
Interestingly, Stephen Roche, an economist and former bank chair, was criticized six months ago for predicting that a crash of the US dollar was inevitable. Could this be a denial of reality?
David Oualaalou is a Geopolitical Consultant, Award Winning Educator, Veteran, Author, and former International Security analyst in Washington, D.C.