There has been a growing effort on the part of foreign powers to topple the U.S. dollar from its perch as the world’s reserve currency. The latest example of this push involves a massive defense deal recently completed between Russia and India. According to numerous sources, including the Russian-government-owned Sputnik News, a $5-billion-plus deal to send a technologically evolved Russian air defense system to India is going to be paid for not in dollars but in rubles. It is the first major defense deal signed by Russia to be denominated in a currency other than dollars since 1991.
The deal is just the latest example of two globally-significant nations overtly working to circumvent use of the U.S. dollar – the world’s reserve currency – as a medium of international exchange. As the move away from the dollar continues to gain traction, U.S. investors will have to pay particular attention to the potential negative effects that could plague their dollar-denominated assets, including equities.
Analyst: “Americans are Pushing India, China, Iran and Russia to Abandon the Dollar”
Sputnik News quotes military observer Boris Rozhin as saying the decision to price the contract in rubles was “another small step toward abandoning the total hegemony of the dollar system. And there are more and more steps of this kind being made, whether in arms, energy or elsewhere.”
Andrei Frolov, editor-in-chief of Arms Export magazine, directly addressed the rationale behind the structure of this deal:
“It must be admitted that non-dollar-denominated contracts are less convenient for the customer. Nevertheless, much depends on political will. India has chosen to make a deal in rubles due to fears from the banking sector that Washington will block its ability to conduct transactions. Essentially, with its sanctions policy, the Americans are pushing India, China, Iran and Russia to abandon the dollar.”
The dollar’s role as the world’s reserve currency has afforded Uncle Sam virtually uncontestable power on the global stage. Economically, America’s ability to run massive deficits and an enormous national debt is sustained by the dollar’s status as reserve currency; roughly a third of the U.S. national debt is owned by foreign governments and investors in the form of dollar-denominated U.S. government securities, such as Treasury bonds.
In addition, the ability to apply meaningful, effective sanctions against nations the U.S. sees as acting against its interests has long granted America a global hegemony that would not be possible on the basis of its military might alone. As Frolov suggested, it is that feature of the dollar’s status as reserve currency in particular that has raised the ire of so many nations around the world.
It is recent overt efforts such as the Russia-India deal that have made it clear investors must consider the potential ramifications of a greatly marginalized dollar and take action to protect their savings against them.
A modest diminishment in the global significance of the dollar might result in minimal consequences to America’s financial structure, but a more substantial outcome of these attacks on the U.S. dollar could prove nothing short of devastating to Americans.
It is impossible to list all of the ways a collapse of the dollar would negatively impact the economy. Among countless other potential crisis conditions, inflation could presumably skyrocket to unimaginable levels; the unemployment rate would most likely soar; there surely would be a run on banks as people desperately tried to recover what they could to convert their dollars into alternative assets such as physical precious metals; and we assume the government would institute capital controls designed to prevent citizens from making any such exchanges, because it could drive the value of the dollar even lower.
As you might imagine, the effect on dollar-denominated paper assets likely would be catastrophic. This means investors who own stocks and bonds, including the ones inside of an IRA or 401(k), would be particularly vulnerable to the fallout of a crushed dollar.
Precious Metals – Protection Against the Catastrophic Effects of a Collapsed U.S. Dollar
You might be tempted to dismiss these attacks on the U.S. dollar. However, the fact that a growing number of nations are showing obvious interest in seeing the dollar supplanted as the world’s reserve currency should have your attention.
There are many reasons investors include physical precious metals as a component of their portfolios, and we encourage you to consider it too. One reason is the long-term investment return of gold, which actually has outperformed U.S. equities over the last half-century. Another is the opportunity to own a genuine store of value that exists outside of the dangerous confines of the banking system. Still another reason is to own an asset with the potential to respond exceptionally well during periods of great economic distress, such as the chaos that could ensue if the dollar is substantially marginalized.
To learn more about acquiring physical precious metals as safe-haven protection for your portfolio, call Augusta Precious Metals at 855-242-4121 and speak with one of our knowledgeable gold and silver professionals. Did you know you can have an IRA made of physical gold and silver? You can roll over a portion of your existing IRA or 401(k) into physical precious metals within a gold IRA (or silver). That’s not something you’ll likely hear from your financial advisor, but it certainly can be done, and it could be an ideal way to add all the benefits of physical precious metals to your own portfolio. Ask your Augusta representative about gold or silver IRA ownership.