The dollar has been the world’s go-to currency for decades. It was pegged to a rate of $35 per ounce of gold in 1944 at the Bretton Woods Conference and this gold standard secured its position as a default currency in the post-war world. Then, when the dollar was untethered from gold in the 1970’s, the US economy continued to grow, fuelled by this new found fiscal freedom.
Recent events however, seem to signal that the pre-eminent position of the dollar may be coming to an end. What would this mean for the economy, and what strategies can businesses adopt to mitigate any risk here?
Status of the global economy
The global economy flourishes when there is peace in the world and control and stewardship from one source. However, recent events have put pressure on this stability, and highlighted the existential risks posed to the economic status quo.
From the COVID-19 pandemic which stalled global business and led to the printing of vast sums of money with the inevitable inflationary consequences, to the conflict that has erupted in Ukraine which threatens to escalate, the global economy is under strain the likes of which hasn’t been seen for decades.
Amidst the confusion of the invasion, and in response to economic sanctions, Russia pegged the Ruble to gold, which put the currency back on the world map. In addition, the US has, in recent years, incurred a huge debt with China, currently standing at $1.063 trillion. The US can currently impose trade tariffs and sanctions, and this is a significant part of the power the country wields on the world stage. If the dollar were to lose its power therefore, it could mea a big shift in geopolitical reality.
Impact on the future of businesses
Threats to the dollars status as global reserve currency could have a significant impact on businesses and entrepreneurs globally. Increasingly, countries and institutions are diversifying their currency reserves, as a means of hedging bets against the current uncertainty. Israel, for example, just added significant amounts of Chinese RMB to its reserves, in what the country describes as a ‘philosophy change’.
Businesses to should engage in a philosophy change, rather than standing still and hoping for a continuation of the status quo. Other currencies hold value, with some set to hold even more value in the future, for example, cryptocurrencies.
For decades, the dollar survived several recessions, political instabilities, and general performance issues. However, as the world changes, it becomes clear that the value of the dollar is not absolute. Several mainstream industries and businesses currently accept payments in the form of multiple currencies and, of course, crypto. Therefore, any forward-thinking entrepreneur should focus on diversifying the range of currencies they can work with.
While crypto is in its early days and struggling with inflation, other options present themselves and the crypto market now caters for a range of risk appetites, with so called ‘stable coins’ growing in popularity.
When faced with uncertainty, successful businesses and entrepreneurs re-evaluate their options. The dollar has been reliable for so long, but recent events suggest that that trend could end. Therefore, this is the right time to consider alternatives to the dollar, such as crypto or currencies. Thinking along those lines is better than a wait-and-see approach.