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Sanction Overdose: What If the Dollar Collapses?

Updated: Apr 27, 2023

For many nations, there is rising fear that the United States dollar may no longer be the world's primary reserve currency.

Recently, nations including Saudi Arabia, Brazil, and France have expressed interest in abandoning the dollar, casting doubt on the currency's future. For the American economy and the billions of people who have relied on the dollar, losing the role as reserve currency may be disastrous.

The existing system permits the US to print money, which foreigners then use to buy goods from the US, but the profits made by this system are not shared with the American people instead going to the Treasury and Wall Street. The demand for dollars will decrease if foreigners cease buying them, which will result in a drop in its value and losses for those hanging onto them.

The value of the currency decreases when demand for dollars declines, raising the price of imported items. This will cause costs for things like petrol, heating oil, and food to rise sharply, and eventually prices for things like vehicles, building supplies, clothing, furniture, TVs, computers, and medical equipment will as well.

The sting of this inflation will be felt by American consumers, which will result in a change in capital flows and the sale of assets denominated in dollars. The value of assets like stocks, bonds, and treasuries will decline as a result of foreigners selling them. Given that roughly 40% of American stocks are held by foreigners, this could result in a huge drop in their value.

Dollars will lose value if there is less of a demand for them, which will cause inflation and financial losses for people who hold onto them. The impact of this inflation will be felt by American consumers, and as a result, capital flows may change and assets denominated in dollars may be sold. If foreigners start selling their assets, the value of American assets may decrease significantly, resulting in large losses for American investors.

It is possible to halt this. But considering the clown show that Washington is putting on to raise the debt ceiling once more and its concern with sanctions that deter foreign nations from using the currency, Washington is nowhere near doing the real thinking that will be required to turn this ship around.

Losing the role of reserve currency would be disastrous for both the American economy and its citizens. Since having a reserve currency serves no purpose for its citizens, no nation needs it. But after you get halfway there, you better not let go, just like when climbing a cliffside without any equipment.


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