By FS Staff
Will the US dollar be replaced by Chinese yuan, SDRs, or gold as the main global reserve currency anytime soon? According to Richard Duncan, well-known author, market strategist, and publisher of MacroWatch, the answer is a resounding “no”.
In a recent podcast interview with Financial Sense, Duncan explains that the current global monetary system is unstable, and that we are living in a massive credit bubble facilitated by a fiat (unbacked) dollar standard. The only way, however, to avoid a “Mad Max scenario” of global economic collapse is for the US to increase – not decrease – its trade deficit with the rest of the world.
During the interview, Duncan also explains the historical origins of our current monetary system and why proposed replacements to the dollar as the world’s reserve currency-whether Chinese yuan, SDRs, or gold-will not work currently or any time in the near future without disastrous consequences, he argues.
Rapid Expansion of Global Credit and Trade
According to Duncan, the US dollar replaced gold and allowed for a rapid expansion in global credit and trade, since unlike gold, the dollar (or fiat money in general) is not a scarce commodity.
With the dollar acting as the world’s reserve currency, American trade deficits – like those with Japan during the 1980s or with China more recently – helped fuel an economic miracle in many parts of Asia and the developing world, as liquidity flooded into the banking systems of those countries. As a result of these trade deficits, the US “threw nearly 10 trillion dollars off into the global economy between 1980 and today,” Duncan states.