The U.S. Dollar is the World’s Reserve Currency -Does it Really Matter?

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The short answer is yes.  America has advantages with the U.S. dollar as the world’s reserve currency that other nations, such as China, would love to enjoy. Since the U.S. dollar is the medium of exchange in worldwide transactions, the U.S. pays for transactions in its own currency.  Other countries are required to exchange their currency into the U.S. dollar which results in additional transaction fees with each exchange. This means they will pay slightly more for the same commodity than the U.S. would pay. This reserve currency status also allows Americans to borrow at advantageous rates because our dollar is in a higher demand.  Last but not least, the U.S. can always print more dollars to pay its global bills.

We hear on occasion of appeals that America must go back to the Gold standard. Although I am not opposed to this idea; I do not see this happening. If we went back to the Gold standard monetary system, the participating nations would lose their ability to print more money to pay their bills.  I do see the possibility that the world reserve currency may actually become a basket of different currencies which would include Gold.  If you do not understand by now that Gold is a currency and not a commodity, you should. Central banks around the world began exchanging U.S. dollars for Gold back in late 2009; in 2011, they have only picked up the pace. I think the direction is that reserves for currency will be a possible basket of U.S. dollars, Gold, perhaps euros and maybe remnibi. You cannot count the Chinese out; they intend to be a global financial power.

As we watched the price of Gold break $1800 per ounce recently, many people directly attribute this to the loss of faith in government-backed paper money – more accurately, it is a loss of faith in paper money by their own central banks! What do they know that perhaps we should know?   

 By Peter LaTona, Vice President of Sales at APMEX

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