International Monetary Fund. Department of the Treasury. Federal Reserve Bank of St. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile.
Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. World Economy Trade Policy. Table of Contents Expand. Table of Contents. Why the Dollar Won't Collapse. By Kimberly Amadeo. Learn about our editorial policies. Updated November 21, Reviewed by Thomas J. Article Reviewed November 21, Thomas J.
Brock is a CFA and CPA with more than 20 years of experience in various areas including investing, insurance portfolio management, finance and accounting, personal investment and financial planning advice, and development of educational materials about life insurance and annuities. Learn about our Financial Review Board. Bottom Line Although the dollar has declined dramatically over the last 10 years, it has never been in danger of collapsing. Article Sources. If the dollar collapses and runaway inflation results, it may get easier to pay off existing debt, but it's also going to be extremely difficult, and costly, to engage in any new borrowing.
Inflation benefits borrowers at the expense of lenders. In times of high inflation, lenders charge high interest rates to try to stay ahead of the dwindling value of the money they've lent out. Amid hyperinflation, if they're willing to make loans at all, lenders would be expected to set astronomical interest rates.
And they might not be willing in any case. Amid hyperinflation, money can lose value so fast that the only rational thing to do is to spend it -- to turn it into something of value -- rather than lend it.
Depending on the definition of "collapse," the Russian currency calamity during could be considered another example. The root of any collapse stems from a lack of faith in the stability or usefulness of money to serve as an effective store of value or medium of exchange. As soon as users stop believing that a currency is useful, that currency is in trouble.
This can be brought about through improper valuations or pegging , chronic low growth, or inflation. Currency collapses are caused by a lack of faith in the stability or usefulness of money—either as a way to store value or as a medium of exchange.
Ever since the Bretton Woods Agreement in , other major governments and central banks have relied on the U. The U. Finally, the American economy is still the largest and most important economy in the world. Even though growth has slowed significantly since , the American economy still regularly outperforms its peers in Europe and Japan.
The fundamental weakness of the U. This weakness is shared by every other major national currency in the world and is perceived as normal in the modern age. However, as recently as the s, it was considered a somewhat radical proposition. Without the discipline imposed by a commodity-based currency standard such as gold , the worry is that governments might print too much money for political purposes or to conduct wars.
If the Federal Reserve creates money and the U. Fortunately for the United States, virtually every alternative currency is backed by similar economic policies.
Even if the dollar faltered in absolute terms, it may still be stronger globally, due to its strength relative to the alternatives. There are some conceivable scenarios that might cause a sudden crisis for the dollar. The most realistic is the dual-threat of high inflation and high debt, a scenario in which rising consumer prices force the Fed to sharply raise interest rates.
Much of the national debt is made up of relatively short-term instruments, so a spike in rates would act like an adjustable-rate mortgage after the teaser period ends. If the U. Another option would involve some major power, such as China or a post-European Union Germany, reinstating a commodity-based standard and monopolizing the reserve currency space. Gao Desheng, senior executive vice president of Bank of China Johannesburg Branch The US dollar dominance in global economy is rooted in the currency's credit based on the US' economic strength.
However, the US' unlimited quantitative easing QE and surging debt levels designed to stimulate its coronavirus-stricken economy has severely eroded the credit of the currency. Since the COVID pandemic took hold in the US, to stimulate the plunging stock market and prevent a long-term economic recession, the US government has significantly expanded fiscal expenditure and the US Federal Reserve Fed has started unlimited QE, injecting excessive liquidity to global economy.
The dollar has been falling steadily since last March. It is down about 12 percent relative to America's major trading partners, and experts believe that there is more to come. In an article published in January, Stephen Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia who in September forecasted that dollar will collapse by the end of , has stuck to his bearish forecast.
The inflation of the US debt, the actual negative interest rate of the dollar, the spread of the pandemic and the gloomy economic prospects have changed the flow of international funds. It has become doubtful whether the US' financial game which has been played for decades can be sustained.
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