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Reserve Currencies in Distress, Protect Yourself with Gold

Commodities / Gold and Silver 2011 Aug 18, 2011 - 03:08 AM GMT

By: Dr_Jeff_Lewis


Dollarization is term coined to describe the dollar’s influence as the reserve currency of choice around the globe.  In 2010, the US dollar comprised 62% of the world’s foreign exchange reserves, dubbing it a very powerful player in the world of finance.  But what about the second place reserve currency? 

The Euro comes in second as an important reserve currency, making up 27% of all currency reserves.  Therefore, the two currencies make up 89% of reserves, virtually all foreign exchange reserves. 

Previously, it was only the dollar that was seen to be in play as a falling reserve currency giant.  Now the Euro is on a similar path as the European Central Bank throws out all the rules which supposedly govern ECB action to bail out Italy and Spain.  We can see clearly now that the world of international finance and banking is being shaken to its core.  For how much longer will reserve holders latch onto two failing currencies to bolster their own domestic treasuries?

The New Reserve of Choice

The problem with fiat currencies is very simple; the value of a modern currency is derived from government order, not actual value.  One piece of paper is worth only one piece of paper, regardless if it is inked with the number 1 or 20.  The world is slowly waking up to this fact.

However, to replace the US Dollar and the Euro as the premier reserve currencies means that you must have a replacement.  The third and fourth most held reserve currencies, the Great British Pound and the Japanese Yen, are worth only a combined 7% of international reserves.  Besides, both England and Japan have economic problems of their own.

Could cash be stored in China?  Well, no, considering that its value is derived also by fiat, and primarily tied to the US dollar and Euro.  Why buy Chinese Renminbi if all you get in return is exposure to Dollars and Euros?

So how about the other major currencies?  Australia might be a fine place to store capital, but it’s economy is worth less than $1 trillion per year.  It simply couldn’t sustain the government debt necessary to print more money equivalents.  Actually, almost every nation not in the top four reserve currencies faces a similar difficulty.

The International Reserve Currency

Never have gold and silver looked better as an investment against a decline in the international community’s favorability toward the US dollar and Euro, two currencies representing distraught economies. 

The Financial Times reports that from 1971 to 1981, the largest annual purchases of gold was 276 tonnes in 1981.  This should have been the best time to buy gold, as the US gold standard had come to a close for ten years straight.

This year, bankers are rallying around the concept of including gold into monetary policy measures.  A survey of 80 central bank members and sovereign wealth fund managers indicate more than half believes a “portfolio of currencies” will erase the dollar’s standing in the next 25 years.  This survey is more than just a public opinion poll; this is a survey of people who have the capacity to make change happen.

First it was the dollar, then it was the Euro, and soon it will be fiat in whole.  Protect your assets with the world’s first and longest lasting currencies: bullion.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of and

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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