Purchasing power of USA dollar will decline!

[balti]

"The U.S. dollar has been moving broadly higher since May 2022 as the US economic recovery ramps up and as the Federal Reserve started to rein in support for the economy. According to analysts at ING the US Dollar could continue to rise in the coming year."


Will the US Dollar Collapse? How to Make Sense of the Dollar Amid the Long-term Crisis

https://www.fullertonmarkets.com/blo...ng-term-crisis

August 3, 2020

When the financial world is teetering, investors view the US currency as the safest haven, even more so than gold, the yen or the Swiss franc.

As the coronavirus outbreak reached pandemic status, people began panic buying staples: rice, pasta, noodles, and the US dollar. The demand was so intense that the US Federal Reserve stepped in to help foreign central banks and others get their hands on the greenback in March. It was a similar situation as during the 2008-2009 financial crisis, when calls grew louder for an end to the global dominance of a single currency. Yet, just over a decade on, the dollar still reigns supreme.

Because of its sheer prevalence. The US currency is on one side of almost 90% of foreign-exchange transactions and accounts for two-thirds of international debt. Virtually all international trades in oil are priced in dollars. Jean-Claude Juncker, the former president of the European Commission, said it was “absurd” that 80% of Europe’s energy imports are priced in dollars. The greenback’s ubiquity makes nations beholden to fluctuations in its value, ties their economies to decisions made in Washington and serves to amplify dangerous shocks to the financial system, like the one triggered by the pandemic.

Financial market reflects the similar phenomenon. When the financial world is teetering, investors view the US currency as the safest haven, even more so than gold, the yen or the Swiss franc. As the grim economic implications of the virus outbreak strained markets in March, demand for the dollar soared, pushing other currencies lower. Countries with significant debt denominated in dollars suddenly faced higher repayments just as they were confronted with looming recession. Banks — wary of lending to other banks during the eye of a financial storm — started hoarding the greenback, pushing gauges of funding stress to their highest levels in more than a decade. It was the Fed’s actions that prevented dollar shortfalls turning into currency crises.

The US currency has dominated since the end of World War II, when world leaders met at Bretton Woods, New Hampshire, to establish a system to manage foreign exchange and linked their currencies to the dollar. The push to dial back the greenback has its origins partly in the 1998 currency crisis, when Asian nations got caught borrowing too many dollars and were plunged into recession. Fast forward a decade, and Asia’s amassing of dollars to build currency reserves helped fuel a US credit binge that triggered the sub-prime mortgage crisis.

Dollar’s influence is unlikely to shrink. The share of currency trades in dollars increased to 88.3% in 2019 from 87.6% in 2016, according to the Bank for International Settlements. The proportion of foreign reserves held in dollars has remained steady around 60% over the past decade. The currency’s usage in global payments tracked by financial institutions has risen since 2010. And credit extended to non-banks in dollars more than doubled over a decade to a record $12.1 trillion by September 2019.

Any move away from the greenback involves bother and expense. Shifting to the euro, yuan or ruble means higher costs and difficulty finding banks to handle business. Faced with US sanctions, Russia has succeeded in loosening the dollar’s grip. The country now has a higher share of reserves in euros (30%) than in dollars (23%). The euro has also overtaken the dollar as Russia’s main currency in trade with China and is close to doing the same in trade with the European Union. But diversification comes with perils attached: When the dollar rallied in March, the value of Russia’s international reserves plunged by 5% in a week.

Can any currency take on the dollar?
There’s certainly a will, such as yuan and euro. Still, the yuan accounted for just 4% of currency trades in 2019 after China shifted its focus from turning it into a freely convertible currency without government restrictions to promoting it as a reserve currency and stable asset in times of stress. The euro, which was involved in 32% of foreign-exchange transactions in 2019, is the only currency that comes anywhere close to the dollar, but its allure was undermined by the region’s 2010 sovereign debt crisis and the European Central Bank’s use of negative interest rates.

[BulletProofYogi]

Take a note:

https://pib.gov.in/newsite/PrintRele...x?relid=124611

During 2015-16, exchange rate of Indian rupee against US dollar has remained in the range of Rs. 62.7 – 63.9 per US dollar. The variation in the value of rupee against US dollar in the recent months has been due to supply-demand imbalance in the foreign exchange market and the general appreciation of US dollar globally.



The impact of exchange rate depreciation on different sectors of Indian economy depends on a number of factors like elasticity of exports and imports, relative prices of domestic and global products etc. the softening of international commodity prices, particularly crude oil prices, notwithstanding the modest depreciation, will have favourable impact on trade and current account balances as well as macroeconomic stability. This may also reduce the Government subsidy outgo on, among others, kerosene and cooking gas.



To limit the import of gold and to bring the stocks of gold in the mainstream economy, Government has announced the monetization of gold scheme in the Budget 2015-16, which will replace both the present Gold Deposit and Gold Metal Loan Schemes. The Government and the RBI are closely monitoring the emerging external position including exchange rate of the rupee and on an on-going basis calibrating policies or regulations to support robust macroeconomic outcome.



This was stated by Shri Jayant Sinha, Minister of State in the Ministry of Finance in written reply to a question in Rajya Sabha today.

[SonicDJGuy]

Rupee could become the next big thing!

I was reaading this: Oil Pricing Without Dollars: Is It Possible?

https://www.energyintel.com/00000184...7-ddffc2380000

How much does it matter whether oil is priced in dollars? What are the alternatives, and how vulnerable is dollar pricing? Who would suffer — or gain — most if dollars ceased to be the automatic medium for oil exchange? Those aren’t questions people have thought about much since the so-called “petrodollar” agreements of the mid-1970s. But with Russia already off dollar pricing and relations strained between Washington and Riyadh, they now demand consideration. Such “de-dollarization” of oil may never happen; the world may abandon oil before oil abandons the dollar. But then again it may. A unified replacement, such as the Chinese yuan, isn’t feasible. Market fragmentation — another assault on the globalized world oil did so much to help create — is a more likely result.

Petrodollar Deals

Today’s mode of dollar dominance in oil pricing and trade goes back to 1974, to the tumultuous aftermath of the Arab Oil Embargo, the 1973 oil crisis, and the 1971 abandonment of dollar linkage to gold and of fixed exchange rates to the dollar for many currencies. In return for US military and political protection and purchases of its oil, Saudi Arabia agreed to price oil in dollars and hold reserves partly in Treasury bonds. Other oil exporters followed suit. The Saudis also kept their currency exchange rate linked to the dollar.

Under those “petrodollar” arrangements, the Mideast Gulf oil states got richer, the US was able to finance huge trade deficits easily, and a generally strong dollar contributed to the movement of manufacturing out of the US and into China and elsewhere by making US goods relatively expensive.

Within the oil trade itself, complex systems for price discovery grew up, along with methods of hedging physical and financial risks in the long chains through which oil slowly moves from wellhead to refineries to end-users. This market came to be seen by many as a reason why the dollar would surely retain its dominant oil role. Markets were “deep” and “liquid” and included a range of services that couldn’t be replicated quickly, if at all.

Russia De-Dollarized

However, irritation and fear have built up over the years at the US’ increasing use of its control over aspects of the dollar-trading system — particularly the supposedly international Society for Worldwide Interbank Financial Telecommunications (Swift) — to unilaterally block oil sales by countries whose policies it opposed. Think Iran and Venezuela. Steps have been taken to bypass Swift, including China’s creation of a Cross-Border Interbank Payments System (Cips). But these steps remain tentative.

Russia worked with China and others on alternatives to the dollar in various areas, developed a clunky Swift alternative of its own, and tried to help Iran move oil in contravention of US sanctions. Then it invaded Ukraine. US and EU punitive sanctions didn’t stop at constraints on Russian trade. They also froze some $300 billion in Russian financial reserves. Moscow cried “theft,” and some Western commentators warned that failure to protect other countries’ national reserves could undermine the dollar’s reserve-currency status and its use as a payment medium for oil and other commodities.

Moscow quickly refused to accept dollars, or euros, for its oil and natural gas. Suddenly, the world had dual oil pricing regimes. Most oil still sells for dollars, but sales of oil by Russia, Iran and Venezuela to China, India, Turkey and a few others are now priced in a hodgepodge of Chinese yuan, Russian rubles, importing country currencies and barter. These prices are not transparent but are presumed to be at a discount of 30% or more at times to published dollar prices.

In the non-dollar market, players can’t easily hedge the financial aspects of transactions or dependably find alternative buyers for physical oil. Their insurance coverage may be dicey. But the buyers are paying substantially less for part of their oil than Europeans and US purchasers and appear willing to accept the risks.

The discount is obviously bad for Russia. But how bad is difficult to quantify, given that the Russians can’t buy and sell much in dollars or euros in any case, and trade mainly in the currencies in which they’re paid, at often unknown exchange rates.

Saudis Next?

For Saudi Arabia and others in Opec, the Russian drama developed against the backdrop of the shale oil and gas revolution that greatly diminished the US need for Saudi or other imported oil. Military misadventures left the US public without much stomach for paying to protect Saudi Arabia. The foundations of the 1974 petrodollar agreement were shaken.

Saudi actions that might once have been ignored were deplored as human rights abuses, leading to President Joe Biden’s snubbing of Saudi Crown Prince Mohammed bin Salman, also known as MBS, before and in the early stages of the Democratic president’s administration. Biden this summer shifted gears in the face of high gasoline prices and met with MBS in Jeddah, to plead for more oil.

But the about-face evidently came too late. Two months later, Opec-plus, with the Saudis clearly at the helm, agreed to cut production by a theoretical 2 million barrels per day, pushing prices back up into the Saudis' apparent comfort zone of $90-$100 per barrel.

Many in Washington were furious, and the long-debated No Oil Producing and Exporting Cartels (Nopec) bill that would open the Saudis to asset-threatening lawsuits is seen as having its best chance of passage in years. Could such passage prompt Saudi Arabia to join Russia in abandoning the dollar and Treasury bonds?

Dollar Aftershocks

The enormous financial holdings Saudi Arabia has built up over decades are heavily in dollars. Assuming other oil and commodity exporters joined with the Saudis in abandoning dollar pricing, the dollar could lose value along with its status as a “safe haven.” And where could the Saudis move their liquid assets? China doesn’t look like a hospitable haven. The euro doesn’t seem appealing amid all the tumult within the EU. Gold is awkward. Crypto currencies are too wacky.

The situation could change in time. If the Saudis abandoned their currency linkage to the dollar along with dollar oil pricing, a lower-valued Saudi riyal would have advantages in terms of the economic diversification the energy transition requires. But it would still be a loss of value.

The US, too, has much to lose. The ease with which it finances its enormous national debt could disappear. Its ability to unilaterally sanction other countries at will could be another victim. Nor is the loss of prestige anything to be sneezed at in the politically agitated country. Rebuilding domestic manufacturing could help mitigate the loss by shrinking the trade deficit, but that takes a long time.

Arguments for continuing the status quo may well win out for now. But what happens if China announces it won’t pay for oil or other commodities in dollars? It has already reportedly discussed yuan payments with the Saudis. Or worse, if war breaks out between China and the US over Taiwan?

A simple switch from dollar to yuan is probably not an alternative. Beijing has shown no willingness to make the sacrifices in domestic economic control that promoting the yuan as a substitute for the dollar would entail. It’s more likely, as senior State Street analysts recently suggested on the website War on the Rocks, that “the extraordinary weaponization of the dollar in the Ukraine war [will serve] to increase incentives toward financial fragmentation.”

It would be ironic indeed if the international oil industry that has been such a vital agent of US-led globalization were to become a critical instrument in the demise of that system. But it could happen.

Sarah Miller is a former editor of Petroleum Intelligence Weekly, World Gas Intelligence and Energy Compass.

[jay999]

Call me crazy but my take is...
To save the dollar, the Russo-Ukrainian War is a key factor..Why??

Destabliser Russian oil
Control the market, push the dollar forward.

Or the Chinese and Russians will take over?

[Karmadev]

Originally Posted by jay999

Call me crazy but my take is...
To save the dollar, the Russo-Ukrainian War is a key factor..Why??

Destabliser Russian oil
Control the market, push the dollar forward.

Or the Chinese and Russians will take over?

Dollar will lose value not collapse.
Indian rupee could over take the dollar internationally it is possible!

If you have time read the following:

Reading: Strengthening and Weakening Currency

Strengthening and Weakening Currency
When the prices of most goods and services change, the price is said to “rise” or “fall.” For exchange rates, the terminology is different. When the exchange rate for a currency rises, so that the currency exchanges for more of other currencies, it is referred to as appreciating or “strengthening.” When the exchange rate for a currency falls, so that a currency trades for less of other currencies, it is referred to as depreciating or “weakening.”

To illustrate the use of these terms, consider the exchange rate between the U.S. dollar and the Canadian dollar since 1980, shown in Figure 15.3 (a). The vertical axis in Figure 15.3 (a) shows the price of $1 in U.S. currency, measured in terms of Canadian currency. Clearly, exchange rates can move up and down substantially. A U.S. dollar traded for $1.17 Canadian in 1980. The U.S. dollar appreciated or strengthened to $1.39 Canadian in 1986, depreciated or weakened to $1.15 Canadian in 1991, and then appreciated or strengthened to $1.60 Canadian by early in 2002, fell to roughly $1.20 Canadian in 2009, and then had a sharp spike up and decline in 2009 and 2010. The units in which exchange rates are measured can be confusing, because the exchange rate of the U.S. dollar is being measured using a different currency—the Canadian dollar. But exchange rates always measure the price of one unit of currency by using a different currency.

https://courses.lumenlearning.com/su...ning-currency/

[Asiansoul]

If you've not read this

https://www.forbes.com/sites/qai/202...h=4dda5ae2518a

Key Takeaways
A currency collapse is when a country's currency loses all its value and becomes practically worthless in day to day use
This is generally as a result of political or economic upheaval, hyperinflation or war
It’s not a common occurrence, but we’ve seen it happen before in various places around the world
For investors, it’s a risk to be aware of, though luckily it’s fairly easy to protect yourself against it
While technically the U.S. dollar could collapse, it’s backing from the largest economy in the world and its status as the global reserve currency, makes that highly unlikely
Whoa, that’s a big statement. If you're someone from Argentina, Venezuela or Russia, you understand the realities of what can happen when your home currency fails. It’s a big deal, and it can cause immense financial damage to the economy and individuals.

But is it actually realistic to think that the U.S. Dollar, the world's reserve currency, could collapse too?

Look, we’ll cut to the chase. It’s unlikely. But, it’s not impossible. Nothing is in the world of money and finance. For investors, it’s important to understand the potential outcomes that could impact their finances, even if they’re unlikely.

So in this article, we’re going to walk you through what actually happens when a currency collapses, how it could impact investors, and what they can do to protect against it.

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It then automatically rebalances the Kit in line with these projections. Not only does it mean your portfolio is always up to date, but it means your funds are diversified into investments all across the world.

What is a currency collapse?
A currency collapse is when a currency loses all of its value. This might seem crazy, but it makes more sense when you consider that money is simply an IOU from the government. It used to be that paper money, coins and even numbers on a bank statement represented an amount of gold in reserve.

In those days, money represented an IOU for that amount of gold. Now, the system isn’t fully backed by gold, but the concept remains the same. Now, they’re backed by the weight of the United States, reflecting everything within the economy.

So in order for a dollar to have value, society needs to believe that the United States has value. Given how many taxpayers, businesses and valuable assets are in the US, it’s hard to argue that it doesn’t have value. In fact, the reason why the U.S. was able to move off the gold standard was because it had so much economic value.

So, a currency collapse is when there is no longer any trust that the asset, country or organization has sufficient value to reflect the currency.

This can happen for a number of reasons.

Hyperinflation
When hyperinflation occurs, every dollar becomes less valuable. $10 might buy you a 12 case of Pepsi today, and then tomorrow that same $10 only buys you six Pepsi’s. The currency’s value becomes less and less, and this can create a spiral that ends up in it becoming practically worthless.

We’ve seen an example of this in Zimbabwe in the early 2000’s.

Political Instability
While not something we expect to see in the U.S., governments can be overthrown. When there is a military coup, a war or another event resulting in political upheaval, a country’s currency can often be a casualty.

High Debt
Many countries have high levels of debt these days, but this is all relative to the strength of the underlying economy. When a country has very high debt and a shrinking economy, this can cause a flight of assets and a collapse of the currency.

These are just a few examples. Others include trade imbalances, loss of status as a global reserve currency, natural disasters or war. All of them relate to instability within a country, as the currency is reflective of the global financial systems trust in that country.

The U.S. dollar’s special status
Unlike any other country in the world, the U.S. dollar has a special place in the global financial system. That’s because it is the global reserve currency. That means that it’s considered as the safest currency there is, with many other countries keeping U.S. dollars in reserve.

This isn’t just a theoretical detail, it’s a practical one too. For example, many global financial contracts are denominated in U.S. dollars, and many countries who have struggled to maintain a stable currency use U.S. dollars as their own national currency.

Right now there are 11 foreign countries that use the U.S. dollar as their official currency. These include Panama, El Salvador, Zimbabwe and Timor Leste.

The U.S. dollar has been able to gain and maintain this special status because of the strength of the economy. The U.S. is still the biggest economy in the world by far, with an annual GDP of $23 trillion. Second is China with $17.7 trillion, and way back in third is Japan with $4.9 trillion.

All of this is to say, for the U.S. dollar to collapse would take something pretty major. Like, a WWIII type situation.

And despite all of the uncertainty around the world, the U.S. still remains one of the most stable countries there is. The chances that we see a collapse of the U.S. dollar are very slim, and if it did happen, we'd probably have bigger problems to worry about than our investments.

Like where to get clean water and what to hunt for our dinner.

How does currency collapse impact investors?
Investments are inherently tied to the currency they’re held in. If you hold U.S. stocks which are denominated in dollars, you need dollars to buy and sell them. That’s fine if the currency remains stable and you live in the United States, but it can cause havoc if it doesn’t or you don’t.

When a currency collapses, investors can see their assets plummet in value, purely on the exchange rate alone. Not only that, but during times of economic and political crisis, governments will often restrict the movement of currency in an attempt to limit the damage.

So currency risk is a really important factor for investors. Anyone looking to invest in assets denominated in a ‘risky’ currency, should understand the additional risks involved, and expect the potential for additional returns for taking that higher risk.

The bottom line
Currencies can and do collapse, but it’s not a minor event. When a currency collapses, it’s down to a significant economic or political event in a country that has a huge impact on its citizens.

It’s not a likely outcome at all in most countries around the world, and that’s particularly true for the United States. This is down to the U.S. dollar's status as the global reserve currency.

So while technically the U.S. dollar could collapse, the chances of that happening any time soon are incredibly slim.

For investors, currency collapses can impact their portfolios if they invest globally (as they should be). The best way to protect against this is through sufficient diversification. By having assets spread across different industries and in different currencies, it limits the potential damage of a currency collapse on a portfolio.

If you prefer to stick to investing in the U.S. for now, Q.ai’s AI-powered Active Indexer Kit allows you to do just that, without having to lift a finger. It offers access to a range of ETFs that cover the entire U.S. market, offering significant diversification with an AI edge.

Download Q.ai today for access to AI-powered investment strategies.