The Possible Causes and Outcomes of a US Dollar Collapse (2024)

FAQs

What is the cause of the dollar collapse? ›

Causes of a US Dollar Collapse

Inflationary Pressures: Another crucial aspect is the impact of inflation. If the inflation rate rises rapidly, it erodes the purchasing power of the dollar. This, in turn, can lead to a decline in international trust, further exacerbating the risk of a collapse.

Diversifying your portfolio into precious metals like gold and silver, cryptocurrencies such as Bitcoin and Ethereum, and hard currencies like the Euro and Japanese yen can serve as a hedge against a dollar collapse due to their tendency to retain value.

For example, if the dollar decreases in value, then items priced in dollars will become more expensive for foreign investors. This could lead to a sell-off of dollar-denominated assets, negatively impacting your portfolio.

We expect 2024 to be a year of diverging trends for the dollar. It will likely move lower on a broad trade-weighted basis early in the year but stabilize as the year progresses. Although we expect a general downward drift for the dollar, performance of individual currencies will likely vary widely.

There is no reason to expect the U.S. dollar to collapse in the near future.515 Such a change would require the entire world to change its adherence to an international monetary system that has the greenback at its center. As yet, no replacement is anywhere on the horizon.

Diversify Investments

Spreading your wealth among diverse independent assets is a smart move that could help you preserve stability in the event of a fiat currency collapse. Tying all your money to one asset type exposes you to significant risk if that asset loses its worth.

Gold, Silver, and Other Precious Metals

Precious metals can't be printed like paper money, which makes them a good hedge against economic collapse. Since their supply is limited, the value of gold and silver holds better over time.

The US dollar has been the world's reserve currency for decades, but its dominance is fading. Sanctions against Russia have spurred other countries into considering backup currencies for trade. US monetary policies, the strong USD, and structural shift in the global oil trade also contribute.

It is worth less in inflationary dollars. But the amount stays the same. Just that the value of the mortgage is worth less and the lender doesn't earn as much on it prior to collapse in current dollars. But you pay the same amount with less valued money.

This is an effort by a growing number of countries to reduce the role of the U.S. dollar in international trade. Countries like India, China, Brazil, Malaysia and Bolivia, among others, are seeking to set up trade channels using currencies other than the almighty dollar.

What goes up when the dollar falls? ›

A falling dollar diminishes its purchasing power internationally, and that eventually translates to the consumer level. For example, a weak dollar increases the cost to import oil, causing oil prices to rise.

Japan continues to be a popular choice, but Vietnam and South Korea stand as solid alternatives among numerous countries in Asia with favourable exchange rates for the US dollar. Closely following in value are South American countries: Argentina and Chile are among those offering the biggest luxury bang.

Prior to 1971, the US dollar was backed by gold. Today, the dollar is backed by 2 things: the government's ability to generate revenues (via debt or taxes), and its authority to compel economic participants to transact in dollars.

A weaker dollar, however, can be good for exporters, making their products relatively less expensive for buyers abroad. Investors can also try to profit from a falling dollar by owning foreign-currency ETFs or investing in U.S. exporting companies.

When investors earn more money from better yields (higher interest payments on the currency), it will attract investment from global sources, which may push the U.S. dollar higher for a while. Conversely, a weak dollar occurs during a time when the Fed is lowering interest rates as part of an easing monetary policy.

This is an effort by a growing number of countries to reduce the role of the U.S. dollar in international trade. Countries like India, China, Brazil, Malaysia and Bolivia, among others, are seeking to set up trade channels using currencies other than the almighty dollar.

A US dollar collapse would also likely affect the gold market in the U.S. Rising inflation, a common result of a falling dollar could make gold more popular as an investment. This would likely cause gold prices to rise. The rising demand for gold could also increase the amount of gold mined in the U.S.