Categories
Gold & Silver Money

Fiat Currency vs Gold

 

Do you know the difference between fiat currency vs gold? In this article we discuss and define fiat currency vs gold, the history of money in the US and make some gold predictions. We also look at why gold may be a solid addition to your investment portfolio based on political and economic changes today.

Current Economic Crisis in the United States

Debt and Unemployment are High, Interest Rates Low and COVID-19 Strikes; The Stock Market is Soaring – Something is Wrong

According to Experian data, consumer debt has grown to around $14 Trillion in 2019. Debt for Americans has been increasing steadily since at least 2009. This debt includes things like credit cards, home loans, vehicle loans and student loans.

In addition, Americans are struggling financially right now because of COVID-19 shutdowns. Many people live paycheck-to-paycheck and have no savings. As a result, a sudden loss of employment caused them to face economic ruin or bankruptcy. According to the website Trading Economics, July 2021 unemployment is estimated to be approximately 5.4%. Although this is much lower than the double-digit unemployment numbers from 2020, Americans are still struggling to find employment.migration

The Catastrophic Dot Com Bubble of 2000

The Dot Com Bubble that began in March 2000 caused the S&P 500 Index to drop almost 50%. This bubble bursting lasted until 2007. That means that if you were planning to retire in 2000, and many of your investments were locked into a Wall Street 401(k) that fell 50%, you couldn’t retire. Many people at this time were forced to return to work because they couldn’t afford to retire.

Currently, Wall Street stock prices are at record-breaking levels. Prices are high, interest rates are low, and everyone is cheering the mania. Many are questioning whether this will end badly like in 2000 and 2008.

World Reserve Currency

Subsequent to World War II, the United States Dollar became the official world reserve currency. As a result, a critical chapter was written on US Dollar history. Learning about fiat currency vs gold tells us that the US Dollar was backed by gold. This forever shaped the future of the country; however, the stability in the US economic strength didn’t last. The impact of this change to global finance was significant and had long-lasting impacts on both US influence and power, as well as purchasing power outside the United States. A reserve currency is one where the central banks maintain a fixed exchange rate with a particular currency and their own currencies. In this case, the US Dollar became the reserve currency. As a result, this change played a vital role in the financial stability and prosperity that Americans enjoyed in the latter 20th century.

As world reserve currency holder, the United States was required to redeem US Dollars for gold. Additionally, after World War II, the United States was one of the largest holders of gold bullion in the world. As a result, world reserve currency status for the US Dollar seemed like a natural fit. Unfortunately, in 1971, deficit spending by the US and an excess of paper money caused countries to increase the demand for gold. In response, the US Dollar changed forever, and the Dollar was no longer on the gold standard, separating fiat currency vs gold. This meant that gold would no longer back the Dollar. Many believe the end of the gold standard was the beginning of how the dollar lost its mojo and fiat currency vs gold began.

Countries Using the US Dollar

“Five US Territories and seven sovereign nations use the US Dollar as their official currency.” –Investopedia

The territories include Puerto Rico, Guam, the US Virgin Islands, Northern Mariana Islands and American Samoa.

In addition, the following countries utilize the US Dollar:

  • British Virgin Islands and the British Turks and Caicos Islands.

Countries throughout the world that use the US Dollar as a surrogate or a proxy for their own currency include:

  • Panama, Zimbabwe, Cambodia, Ecuador, the Bahamas, El Salvador, Nicaragua, Timor-Leste, Micronesia, Palau, Marshall Islands, Bahamas, Barbados, St. Kitts and Nevis, Costa Rica, Belize, Myanmar, Caribbean Territories and Liberia.

Note: if the dollar loses reserve currency status, the countries will no longer have reason to use the US Dollar. As a result, fiat currency vs gold may become an even bigger issue, potentially ending in an impotent US Dollar, a weaker US economy, hyperinflation, and political and financial collapse.

Fiat Currency

It’s important to understand what fiat currency is and the difference between real money and fiat currency. Furthermore, understanding the relationship of fiat currency vs gold is critical as well. Gold and silver do not act to back fiat currencies. Fiat currency is a promissory note from a government. As a result, fiat currencies frequently fall prey to high inflation, devaluation and ultimately failure. They typically have no intrinsic value. Unfortunately, most modern currencies are fiat currencies. Some investors believe that the US Dollar being a fiat currency is how the dollar loses reserve currency status.

Why Fiat Currency is Popular?

Central Banks, such as the Federal Reserve Bank of the United States, can increase the money supply and increase fractional reserve banking by printing more fiat currency. As a result, these central banks can use the power of interest rate change and money printing to manipulate entire economies.

Although the central banks have good intentions, their meddling with the economic system can wreak havoc on the economy and cause distortions in markets. Often, altering interest rates and printing money simply delays the problem, requiring bigger solutions later. Many investors believe the weakening fiat market may be the domino that leads to how the dollar loses reserve currency status in the world. Furthermore, the debate of fiat currency vs gold has been raging in response to dollar devaluing over time.

Real Money

What is real money?

Something generally accepted as a medium of exchange, a measure of value, or a means of payment: such as officially coined or stamped metal currency, money of account or paper money. –Merriam-Webster Dictionary

The US Dollar: Real Money or Fiat Currency?

A currency not backed by gold or silver is not real money. Unfortunately, government promises do not meet the criteria. Fiat currency is simply a legal tender paper note that the government requires everyone to use for payments. By definition, fiat currency is incontrovertible to gold or silver.Make Your Money Work For You

On the other hand, real money must have the backing of valuable or tangible assets. For example, tangible commodities such as gold and silver have supported currency. In addition, money backed by gold and silver has a value tied directly to the value of the silver or gold asset. As a result, real money is inherently stronger than fiat currency. As a result, it is not easily manipulated. Real money is also resistant to inflationary forces. Unfortunately, being a fiat currency is how the dollar loses reserve currency status.

Future of the US Dollar

It is unclear what the future holds for the US Dollar in the long-term or whether the dollar loses reserve currency status. The US Dollar remains as the world reserve currency; however, it’s role in this position may be for a limited time. Unfortunately, gold and silver do not support the Dollar. Yet, the strong US economy support its world reserve currency status. Financial analysts believe that so long as the US economy is strong, the US Dollar will remain strong. However, US debt and trade deficits continue to grow, putting pressure on the US monetary system.

Alarming Trends at the Federal Reserve and Debt-to-GDP Ratio

Two alarming trends are that the debt to GDP ratio is at 150% and that the Federal Reserve Bank owns 30% of US mortgage securities. First, most experts agree that when the debt-to-GDP ratio climbs higher than 100%, you are in the economic danger zone. Historically, high debt-to-GDP ratios have ended badly.

Unfortunately, this is bad news for the United States economy. As a result, people’s investments and retirements could be badly damaged. So, what does an investor do to minimize risk and survive the upcoming economic depression? Let’s look at gold.

Reasons Investors Buy Gold:

  1. Gold is a store of value. National currencies (even the U.S. Dollar) come and go. But Gold has been around for thousands of years as real money.
  2. It is a liquid asset. Gold (and other metals) can be easily bought and sold in most large cities around the world. It can be exchanged for most currencies this way.
  3. Gold is a tangible asset. You can hold gold coins in your hand or put them in your safe. No waiting for the bank to open to get them. No worrying about destruction by fire or a hacker.
  4. It is a hedge against inflation. Gold tends to thrive during a crisis. Investors tend to jump into gold when stocks go lower.
  5. Gold is private. No other asset offers privacy like a gold coin. A transaction in gold between you and another person is truly a private affair.

Future of Gold

Unemployment, Debt, 0% Interest and Fed Money Printing Drive Gold Prices Higher

We at Piggy Bank Coins believe that gold (and silver) has a bright future. Holding a real money asset such as gold will always be highly regarded by investors. In addition, having gold in your investment portfolio is considered by many to be a safe and secure option. It’s important to grow your wealth while minimizing risk. Specifically, gold is a real, tangible money that can be a store of wealth for a lifetime.Money Backed By Gold

We believe the gold price forecast indicates that demand will continue to grow and that investors should continue to hold gold and silver. With the political and economic instability created in the United States, gold prices will likely increase. For instance, investors will continue to move toward safe harbors. Make no mistake, gold is the safe harbor. As a result, when discussing fiat currency vs gold, there is no comparison.

Second, since 1944 the US Dollar has operated as the world reserve currency. However, the US economy appears to be faltering with high unemployment, high national debt, near-zero percent interest rates and inflation from Federal Reserve money printing. As a result, investors will be looking for something safe to hold on to, and precious metals may be that rock.

The Gold Price Forecast Predictions

Four Gold Price Predictions: $2,300, $3,000-$8,000, $15,000 and $26,000.

Goldman Sachs raised its gold price forecast in July 2020. The investing firm believes that gold will hit $2,300 per ounce as investors flee other falling price investments such as real estate.

According to Jeff Clark, Senior Analyst at GoldSilver gold has a 95% likelihood of going higher in 2021. In addition, he is predicting $3,000-$8,000 gold in the next 5 years.

In an interview with Kitco News in mid-2020, Investor Jim Rickards predicts that gold will rise to $15,000 per ounce before 2025. He bases his prediction on inflationary forces.

In the same interview with Jim Rickards, Investor Peter Schiff predicted gold will rise as high as $26,000 per ounce. He bases his prediction on extrapolating DOW Jones trading values in relation to gold in 1932 and currently.

Wrap Up: Fiat Currency Vs Gold

Understanding the relationship of fiat currency vs gold is critical to the American economy. The American powerhouse economy established after World War II was based upon gold, which supported the US Dollar. However, since 1971, US money was not backed by gold and is simply a fiat currency based upon faith. As the US Economy builds deficits and debt, pressure increases from other trade nations to use other currencies that are considered more stable. As a result, the fiat currency vs gold controversy continues.

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Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.

 

Categories
Money

Money Backed By Gold

Do you know the difference between money backed by gold and fiat currency? In this article we discuss and define money backed by gold, the history of money in the US and make some gold predictions. We also look at why gold may be a solid addition to your investment portfolio based on political and economic changes today.

Current Economic Crisis in the United States

Debt and Unemployment are High, Interest Rates Low and COVID-19 Strikes; The Stock Market is Soaring – Something is Wrong

According to Experian data, consumer debt has grown to around $14 Trillion in 2019. Debt for Americans has been increasing steadily since at least 2009. This debt includes things like credit cards, home loans, vehicle loans and student loans.

In addition, Americans are struggling financially right now because of COVID-19 shutdowns. Many people live paycheck-to-paycheck and have no savings. As a result, a sudden loss of employment caused them to face economic ruin or bankruptcy. According to the website Trading Economics, July 2021 unemployment is estimated to be approximately 5.4%. Although this is much lower than the double-digit unemployment numbers from 2020, Americans are still struggling to find employment.

The Catastrophic Dot Com Bubble of 2000

The Dot Com Bubble that began in March 2000 caused the S&P 500 Index to drop almost 50%. This bubble bursting lasted until 2007. That means that if you were planning to retire in 2000, and many of your investments were locked into a Wall Street 401(k) that fell 50%, you couldn’t retire. Many people at this time were forced to return to work because they couldn’t afford to retire.

Currently, Wall Street stock prices are at record-breaking levels. Prices are high, interest rates are low, and everyone is cheering the mania. Many are questioning whether this will end badly like in 2000 and 2008.

World Reserve Currency

Subsequent to World War II, the United States Dollar became the official world reserve currency. As a result, a critical chapter was written on US Dollar history. Historically, the US Dollar was a money backed by gold. This forever shaped the future of the country; however, the stability in the US economic strength didn’t last and ultimately, the US ended the practice of backing money with gold. The impact of this change to global finance was significant and had long-lasting impacts on both US influence and power, as well as purchasing power outside the United States. A reserve currency is one where the central banks maintain a fixed exchange rate with a particular currency and their own currencies. In this case, the US Dollar became the reserve currency. As a result, this change played a vital role in the financial stability and prosperity that Americans enjoyed in the latter 20th century.

As world reserve currency holder, the United States was required to redeem US Dollars for gold. Additionally, after World War II, the United States was one of the largest holders of gold bullion in the world. As a result, world reserve currency status for the US Dollar seemed like a natural fit. Unfortunately, in 1971, deficit spending by the US and an excess of paper money caused countries to increase the demand for gold. In response, the US Dollar changed forever, and the Dollar was no longer on the gold standard, separating money backed by gold from fiat. This meant that gold would no longer back the Dollar. Many believe the end of the gold standard was the beginning of how the dollar lost its mojo and money backed by gold gave way to fiat.

Countries Using the US Dollar

“Five US Territories and seven sovereign nations use the US Dollar as their official currency.” –Investopedia

The territories include Puerto Rico, Guam, the US Virgin Islands, Northern Mariana Islands and American Samoa.different ways to borrow money

In addition, the following countries utilize the US Dollar:

  • British Virgin Islands and the British Turks and Caicos Islands.

Countries throughout the world that use the US Dollar as a surrogate or a proxy for their own currency include:

  • Panama, Zimbabwe, Cambodia, Ecuador, the Bahamas, El Salvador, Nicaragua, Timor-Leste, Micronesia, Palau, Marshall Islands, Bahamas, Barbados, St. Kitts and Nevis, Costa Rica, Belize, Myanmar, Caribbean Territories and Liberia.

Note: if the dollar loses reserve currency status, the countries will no longer have reason to use the US Dollar. As a result, the end of money backed by gold may become a huge political issue, potentially ending in an impotent US Dollar, a weaker US economy, hyperinflation, and political and financial collapse.

Fiat Currency

It’s important to understand what fiat currency is and the difference between real money and fiat currency. Furthermore, understanding the relationship of money backed by gold to fiat currency is critical as well. Gold and silver do not act to back fiat currencies. Fiat currency is a promissory note from a government. As a result, fiat currencies frequently fall prey to high inflation, devaluation and ultimately failure. They typically have no intrinsic value. Unfortunately, most modern currencies are fiat currencies. Some investors believe that the US Dollar being a fiat currency is how the dollar loses reserve currency status.

Why Fiat Currency is Popular?

Central Banks, such as the Federal Reserve Bank of the United States, can increase the money supply and increase fractional reserve banking by printing more fiat currency. As a result, these central banks can use the power of interest rate change and money printing to manipulate entire economies.

Although the central banks have good intentions, their meddling with the economic system can wreak havoc on the economy and cause distortions in markets. Often, altering interest rates and printing money simply delays the problem, requiring bigger solutions later. Many investors believe the weakening fiat market may be the domino that leads to how the dollar loses reserve currency status in the world. Furthermore, the debate of money backed by gold has been raging in response to dollar devaluing over time.

Real Money

What is real money?

Something generally accepted as a medium of exchange, a measure of value, or a means of payment: such as officially coined or stamped metal currency, money of account or paper money. –Merriam-Webster Dictionary

Is the US Dollar Real Money or Fiat Currency?

what is gold bullionA currency not backed by gold or silver is not real money. Unfortunately, government promises do not meet the criteria. Fiat currency is simply a legal tender paper note that the government requires everyone to use for payments. By definition, fiat currency is incontrovertible to gold or silver.

On the other hand, real money must have the backing of valuable or tangible assets. For example, tangible commodities such as gold and silver have supported currency. In addition, money backed by gold and silver has a value tied directly to the value of the silver or gold asset. As a result, real money is inherently stronger than fiat currency. As a result, it is not easily manipulated. Real money is also resistant to inflationary forces. Unfortunately, being a fiat currency is how the dollar loses reserve currency status.

Future of the US Dollar

It is unclear what the future holds for the US Dollar in the long-term or whether the dollar loses reserve currency status. The US Dollar remains as the world reserve currency; however, it’s role in this position may be for a limited time. Unfortunately, gold and silver do not support the Dollar. Yet, the strong US economy support its world reserve currency status. Financial analysts believe that so long as the US economy is strong, the US Dollar will remain strong. However, US debt and trade deficits continue to grow, putting pressure on the US monetary system.

Alarming Trends at the Federal Reserve and Debt-to-GDP Ratio

Two alarming trends are that the debt to GDP ratio is at 150% and that the Federal Reserve Bank owns 30% of US mortgage securities. First, most experts agree that when the debt-to-GDP ratio climbs higher than 100%, you are in the economic danger zone. Historically, high debt-to-GDP ratios have ended badly.

Unfortunately, this is bad news for the United States economy. As a result, people’s investments and retirements could be badly damaged. So, what does an investor do to minimize risk and survive the upcoming economic depression? Let’s look at gold.

Reasons Investors Buy Gold:

  1. Gold is a store of value. National currencies (even the U.S. Dollar) come and go. But Gold has been around for thousands of years as real money.
  2. It is a liquid asset. Gold (and other metals) can be easily bought and sold in most large cities around the world. It can be exchanged for most currencies this way.
  3. Gold is a tangible asset. You can hold gold coins in your hand or put them in your safe. No waiting for the bank to open to get them. No worrying about destruction by fire or a hacker.
  4. It is a hedge against inflation. Gold tends to thrive during a crisis. Investors tend to jump into gold when stocks go lower.
  5. Gold is private. No other asset offers privacy like a gold coin. A transaction in gold between you and another person is truly a private affair.

Future of Gold

Unemployment, Debt, 0% Interest and Fed Money Printing Drive Gold Prices Higher

We at Piggy Bank Coins believe that gold (and silver) has a bright future. Holding a real money asset such as gold will always be highly regarded by investors. In addition, having gold in your investment portfolio is considered by many to be a safe and secure option. It’s important to grow your wealth while minimizing risk. Specifically, gold is a real, tangible money that can be a store of wealth for a lifetime.

We believe the gold price forecast indicates that demand will continue to grow and that investors should continue to hold gold and silver. With the political and economic instability created in the United States, gold prices will likely increase. For instance, investors will continue to move toward safe harbors. Make no mistake, gold is the safe harbor. As a result, when discussing money backed by gold, there is no comparison.gold investment companies

Second, since 1944 the US Dollar has operated as the world reserve currency. However, the US economy appears to be faltering with high unemployment, high national debt, near-zero percent interest rates and inflation from Federal Reserve money printing. As a result, investors will be looking for something safe to hold on to, and precious metals may be that rock.

The Gold Price Forecast Predictions

Four Gold Price Predictions: $2,300, $3,000-$8,000, $15,000 and $26,000.

Goldman Sachs raised its gold price forecast in July 2020. The investing firm believes that gold will hit $2,300 per ounce as investors flee other falling price investments such as real estate.

According to Jeff Clark, Senior Analyst at GoldSilver gold has a 95% likelihood of going higher in 2021. In addition, he is predicting $3,000-$8,000 gold in the next 5 years.

In an interview with Kitco News in mid-2020, Investor Jim Rickards predicts that gold will rise to $15,000 per ounce before 2025. He bases his prediction on inflationary forces.

In the same interview with Jim Rickards, Investor Peter Schiff predicted gold will rise as high as $26,000 per ounce. He bases his prediction on extrapolating DOW Jones trading values in relation to gold in 1932 and currently.

Wrap Up: Money backed by gold

Understanding the relationship of money backed by gold with fiat currency is critical to the American economy. The American powerhouse economy established after World War II was based upon gold, which supported the US Dollar. However, since 1971, US money was not backed by gold and is simply a fiat currency based upon faith. As the US Economy builds deficits and debt, pressure increases from other trade nations to use other currencies that are considered more stable. As a result, the money backed by gold controversy continues.

Read More:

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Disclaimer: It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.

 

Categories
Economy

Dollar Loses Reserve Currency Status

In this article we discuss the future of how the dollar loses reserve currency status among world currencies. In addition, we touch on how the dollar became the world reserve currency, the history of the US Dollar. We also provide information about the difference between real money and fiat currency.

In a recent Market Insider article, Stanley Druckenmiller, CEO of Duquesne Family Office, was quoted as saying that the US Dollar would be removed as the world reserve currency in the next 15 years (by 2036).

Clearly, the US Dollar has grown weaker in the past 20 years. The US debt has continued to grow out of control and the American economy has become weaker. The United States has become a gross importer and has continued to produce and export very little.

Social Program Budget and War Spending Overload

Over the 20th and 21st Century, America continued to borrow greater sums of money to fund wars throughout the world. The US occupies dozens of nations and has fought wars recently in Afganistan, Iraq and the like. At home, the Baby Boomer generation (born roughly 1946-1964) are now beginning to retire from the labor force.

Dollar Loses Reserve Currency Status

Yet, it is unclear how American social programs such as the Social Security Program and Medicare will pay for all the retirees’ benefits. Furthermore, the labor pool (those who pay taxes) has continued to shrink. With fewer people contributing to these Federal programs, and more requests for benefits coming in daily, something has to give.

US Dollar History

The Continental Congress issued the first United States paper money in 1775, one year prior to the Declaration of Independence. The purpose of the money issuance was to assist with military expenses. The currency lost value. As a result, citizens of the US stopped using the currency.

On July 6, 1785 the Continental Congress officially adopted the dollar as official legal tender, beginning the official US Dollar history. The Continental Congress was a confederation of delegates who acted as representatives of citizens of the American Thirteen Colonies.

Coinage Act of 1792

On April 2, 1792, the US Congress passed the Coinage Act . The official name of the Act is, “An act establishing a mint, and regulating the Coins of the United States.”

The Coinage Act of 1792 established the US Mint and the US Dollar. The US Silver Dollar became the official unit of money for transactions in the United States. The Silver Dollar was subdivided into several denominations: one cent (penny), five cents (nickel), ten cents (dime), quarter-dollar (quarter), etc.

Silver or gold made up each coin, except for the penny. Additionally, it is significant to note that the US One-Dollar bill note did not appear until 1876. This was approximately 100 years after the US Continental Congress approved the first US currency.

During the Civil War, Dollars were called “Greenbacks.” The term was coined because the notes were colored green. In 1869, the US government established a centralized money printing system. As a result, money printed was known as United States Notes. The Greenback played an important and well-known part in US Dollar history.

Intrinsic Value

During early US Dollar History, money was backed by silver and gold. It’s interesting to note that silver and gold are commodity metals that have an intrinsic value, whether in the form of a coin, a bar, jewelry, etc. More than one hundred years later in 1876, the US Government started printing currency on paper. Yet, paper money has no intrinsic or real value.

Federal Reserve Note

In the United States, currency is called “Federal Reserve Notes.” The term is equivalent to “cash” or “money.” It can also be called “banknotes.”

In fact, if you look at a Dollar Bill, it reads, “Federal Reserve Note” at the top. Next, the Federal Reserve Act of 1913, which established the Federal Reserve Bank, also authorized the issuance of the US Dollar Federal Reserve Notes. Obviously, the Federal Reserve Bank plays a critical role in the US Dollar history. Finally, banknotes are legal tender. These notes are the official currency used in the United States. In 1914, the first Federal Reserve Note was issued.

In 1913, the Federal Reserve Bank was established. At the time, existing law required the exchange of currency for gold. However, in 1933, it was illegal to own gold coins. In addition, Federal Reserve Notes were not supported by gold. Later, Americans had to use Federal Reserve Notes. There was no other option to pay debts, except to use the official currency.

Bretton Woods System

In July 1944, a gathering of over 700 delegates from around the world took place in Bretton Woods, New Hampshire. United Nations Monetary and Financial Conference was its official name. The purpose of the meeting was to improve the economy. In addition, the conference established a world banking system, including the International Monetary Fund.

World Reserve Currency

Subsequent to World War II, the United States Dollar became the official world reserve currency. As a result, a critical chapter was written on US Dollar history. This forever shaped the future of the country. The impact of this change to global finance was significant and had long-lasting impacts on both US influence and power, as well as purchasing power outside the United States. A reserve currency is one where the central banks maintain a fixed exchange rate with a particular currency and their own currencies. In this case, the US Dollar became the reserve currency. As a result, this change played a vital role in the financial stability and prosperity that Americans enjoyed in the latter 20th century.

As world reserve currency holder, the United States was required to redeem US Dollars for gold. Additionally, after World War II, the United States was one of the largest holders of gold bullion in the world. As a result, world reserve currency status for the US Dollar seemed like a natural fit. Unfortunately, in 1971, deficit spending by the US and an excess of paper money caused countries to increase the demand for gold. In response, the US Dollar history changed forever and the Dollar was no longer on the gold standard. This meant that gold would no longer back the Dollar. Many believe that ending the gold standard was the beginning of how the dollar loses reserve currency status worldwide.

Crypto Passive Income Money

Countries Using the US Dollar

“Five US Territories and seven sovereign nations use the US Dollar as their official currency.” –Investopedia

The territories include Puerto Rico, Guam, the US Virgin Islands, Northern Mariana Islands and American Samoa.

In addition, the following countries utilize the US Dollar:

  • British Virgin Islands and the British Turks and Caicos Islands.

Countries throughout the world that use the US Dollar as a surrogate or a proxy for their own currency include:

  • Panama, Zimbabwe, Cambodia, Ecuador, the Bahamas, El Salvador, Nicaragua, Timor-Leste, Micronesia, Palau, Marshall Islands, Bahamas, Barbados, St. Kitts and Nevis, Costa Rica, Belize, Myanmar, Caribbean Territories and Liberia.

Note: if the dollar loses reserve currency status, the aforementioned countries will no longer have reason to use the US Dollar.

Fiat Currency

It’s important to understand what fiat currency is and the difference between real money and fiat currency. Gold and silver do not act to back fiat currencies. Fiat currency is a promissory note from a government. As a result, fiat currencies frequently fall prey to high inflation, devaluation and ultimately failure. They typically have no intrinsic value. Unfortunately, most modern currencies are fiat currencies. Some investors believe that the US Dollar being a fiat currency is how the dollar loses reserve currency status.

Why Fiat Currency is Popular?

Central Banks, such as the Federal Reserve Bank of the United States, can increase the money supply and increase fractional reserve banking by printing more fiat currency. As a result, these central banks can use the power of interest rate change and money printing to manipulate entire economies.

Although the central banks have good intentions, their meddling with the economic system can wreak havoc on the economy and cause distortions in markets. Often, altering interest rates and printing money simply delays the problem, requiring bigger solutions later. Many investors believe the weakening fiat market may be the domino that leads to how the dollar loses reserve currency status in the world.

Real Money

Merriam-Webster Dictionary defines “money” as,

Something generally accepted as a medium of exchange, a measure of value, or a means of payment: such as officially coined or stamped metal currency, money of account or paper money. -Merriam Webster Dictionary

Is the US Dollar real money or fiat currency?

A currency not backed by gold or silver is not real money. Unfortunately, government promises do not meet the criteria. Fiat currency is simply a legal tender paper note that the government requires everyone to use for payments. By definition, fiat currency is incontrovertible to gold or silver.

On the other hand, real money must have the backing of valuable or tangible assets. For example, tangible commodities such as gold and silver have supported currency. In addition, money backed by gold and silver has a value tied directly to the value of the silver or gold asset. As a result, real money is inherently stronger than fiat currency. As a result, it is not easily manipulated. Real money is also resistant to inflationary forces. Unfortunately, being a fiat currency is how the dollar loses reserve currency status.

Future of the US Dollar

It is unclear what the future holds for the US Dollar in the long-term or whether the dollar loses reserve currency status. The US Dollar remains as the world reserve currency; however, it’s role in this position may be for a limited time. Unfortunately, gold and silver do not support the Dollar. Yet, the strong US economy support its world reserve currency status. Financial analysts believe that so long as the US economy is strong, the US Dollar will remain strong. However, US debt and trade deficits continue to grow, putting pressure on the US monetary system.

Wrap Up: Dollar Loses Reserve Currency Status

Hopefully, we have explained why the dollar loses reserve currency status in this article. As the US Dollar becomes weaker over time, with nothing like gold or silver backing it, the chances that the dollar loses reserve currency status will increase. As a result, investors must take action now to keep investments safe.

Want to learn more about money and the Federal Reserve Banking System? Check out G. Edward Griffin’s “The Creature From Jekyll Island.”

If you want to learn about the history of money, check out Mike Maloney’s free “Hidden Secrets of Money” video series. It’s a goldmine of information that can help you better understand money and where the world stands today financially. Highly recommended!

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Purchasing Power Risk

Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.