The more dramatic the inflation, the greater the danger that hyperinflation will take place. No government has ever been able to control hyperinflation. If it occurs, it does so quickly and always ends with a crash. Although there are observers myself included who frequently discuss what a reserve-currency crash would mean to the world, there is little or no discussion as to how this would impact people on the street level, and perhaps that discussion should begin.
When currencies crash, the state often tries to float a new currency. Not surprisingly, the Zimbabwean government fought the use of the dollar, as they wanted to retain control of the economy and the people. People were therefore penalised for using the US dollar and other currencies. Soon, most transactions, although illegal, are undertaken in the black-market currency. Second, since no one really wants the new currency, even the political leaders are soon using the black-market currency.
So, unless the EU has already prearranged a new euro, the US dollar might well be chosen as an immediate solution to the problem, as the US dollar is presently recognised and traded throughout Europe. Therefore, a relatively painless transfer could be made. However, the dollar, which is presently praised as being a sound currency, is really only sound in relation to the euro and some other lesser currencies. Once its less stable brother, the euro, collapses, the dollar will be exposed.
As the US dollar is a fiat currency and is on the ropes, the US and any other country that is using the dollar as its primary currency when the time comes will experience a currency emergency at the street level that will be unprecedented.
The big question that is generally not being discussed is: The day after the crash and thereafter , what will be the currency that is used to buy a bag of groceries, a tank of petrol, a meal at a restaurant? Certainly, the need will be immediate and will be on a national level in each impacted country, affecting everyone.
I have discussed for some time that the US will be prepared ahead of time with a new, electronic currency. This will serve three purposes:. If the US does institute such a system, US citizens will then become the most economically controlled people in the world, overnight. A portion of daily trade would occur under the table. Certainly, the government would crack down, and penalties might become severe.
Many were worried foreign banks will drop U. This made London the first trading hub for the yuan outside of Asia. This is one way China is trying to encourage central banks to increase their holdings of the Chinese yuan. It is the biggest potential threat to the value of the dollar. China would like the yuan to replace the dollar as the world's reserve currency.
Since then, China has been devaluing the yuan against the dollar. It is doing so because its leaders are worried the economy is growing too slowly. The devaluation objective is largely accomplished via the continual purchase of U. Over half of the current account deficit is owed to foreign countries and hedge funds. The dollar strengthened during the recession , as investors sought a safe haven in comparison to other currencies.
In March , the dollar resumed its decline thanks to the U. Creditor nations, like China and Japan, worry the U. Why not? A weaker dollar means the deficit will not cost the government as much to pay back. Creditors have been changing their assets to other currencies over time to stem their losses. Many fear this could turn into a run on the dollar. That would erode the value of your U. There are seven steps you can take to protect yourself from inflation and a dollar decline.
Some say the euro could replace the dollar as an international currency. They point to the increase in euros held in foreign government reserves. But the facts don't support that theory. At the same time, U. Dollar holdings are That's only slightly less than the China is the second-largest foreign investor in dollars. Treasury securities. China periodically hints it will reduce its holdings if the U.
Instead, its holdings continue to increase. It buys Treasurys to keep the value of the yen low, so it can export more cheaply. Many say the dollar won't collapse for four reasons.
First, it's backed by the U. That makes it the premier global currency. Second, it's the universal medium of exchange. That's thanks to its sophisticated financial markets. The third reason is that most international contracts are priced in dollars. The fourth reason is probably the most important. The United States is the world's best customer.
It's the largest export market for many countries. Since the COVID pandemic took hold in the US, to stimulate the plunging stock market and prevent a long-term economic recession, the US government has significantly expanded fiscal expenditure and the US Federal Reserve Fed has started unlimited QE, injecting excessive liquidity to global economy.
The dollar has been falling steadily since last March. It is down about 12 percent relative to America's major trading partners, and experts believe that there is more to come. In an article published in January, Stephen Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia who in September forecasted that dollar will collapse by the end of , has stuck to his bearish forecast. The inflation of the US debt, the actual negative interest rate of the dollar, the spread of the pandemic and the gloomy economic prospects have changed the flow of international funds.
It has become doubtful whether the US' financial game which has been played for decades can be sustained. It seems only a matter of time for the US dollar to end its hegemony. Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies of Renmin University of China The US government's excessive release of liquidity is highly likely to trigger a sudden plunge of the value of dollar.
Against the backdrop of mounting downturn pressure and the severe blow from the COVID pandemic, the US government and Fed both agreed to take the stimulus measure supported by unlimited QE, which is widely deemed as unbalanced approach. Excessive liquidity combined with a lack of the support from real economy is bound to bring serious side effects. Even the approach could help the US economy endure current predicament, the followed problems of recall the liquidity from market and to pay back the surging debts still requires proper solution.
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