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25

May

The Probable Fall Of The Dollar In Finance

All the universal currencies are prone to value depreciation against competing currencies. The same phenomenon applies to the US Dollar. This would not be a new thing, as it has been experienced in the past where the United States experienced the Great Depression, where its economic growth was negative, driven by the effects of the World War II transitory period. The fall of the dollar would have severe effects. This would force anyone who is in current ownership of dollar documented assets to sell them at any cost in market value. This is a broad blow, which would affect the foreign governments who are in ownership of the US Treasuries, foreign exchange future leaders and also the individual investors. If a dollar fall occurs, God forbid, firms whose assets are tied to the dollar will hurriedly demand assets denominated in any denominate currency, other than the dollar. 



Likely Causes of the fall

a) An underlying weakness

This is a situation currently facing the dollar (2017) as we are speaking, whereby despite the promising 25% increase in 2014, the dollar is fundamentally weak. Focusing on a flashback, the dollar had previously declined in an alarming 54.7% against the Euro during duration of 10 years (2002 to 2012) where it rounded up a debt of $15 trillion. In the current year, the ball is moving out of control, taking into consideration that the current debt is ranging in the value of $19 trillion. This has ensured, against the will of the dollar users, that the debt to GDP ratio is more than 100%. This makes the dollar prone to a value slide. What a pity!

b) No viable currency alternative

For everyone to buy, there must be a viable currency alternative, taking into consideration that the dollar's strength is (and has always been) based on its use as the prominent world reserve currency. This status was gained when its former President Nixon abandoned the gold standard. There has been evolving suggestions that the dollar should be replaced by bit coin as the world currency. This is because it is not controlled by any nation's central bank, and is finite. However, bitcoin has demerits such as being highly volatile plus it has also become the coin of choice for illegal activities.

c) Economic trigger

A massive economic trigger would destroy the confidence of the dollar. Foreign countries own more than $5 trillion in US debt. Just in case major holders decided to dump these holdings of Treasury notes, there would be panic, leading to collapsing of the dollar. 

Countdown to the Dollar Fall

In conclusion, hopefully nobody is expecting the dollar to collapse this year. There is still a huge chance it may not even collapse at all, since the countries that have the power to make that happen do not wish for it. This is because the domino effect set off by such a crash would harm their economies too. The dollar is therefore set to maintain a normal curve in the money markets. 

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