The Lifespan of Reserve Currency Status

The US dollar is the reserve currency of the world. A reserve currency is a currency that is held in significant quantities by many governments as part of their foreign-exchange reserves. A side-effect of being the world’s reserve currency is that whenever a country purchases a commodity, they do so using dollars. So when France imports oil, they do so using dollars; they have to buy dollars in order to buy oil. In a sense, the dollar is the US’s largest export and is one reason the US hasn’t collapsed already. The dollar’s days as the reserve currency are numbered, however, as this chart shows:

Reserve Currency Status
Reserve Currency Status

Dollar Devaluation since 1913

To devalue a currency, like the dollar, means that the value of the currency decreases. In the case of the dollar, we call this dollar devaluation.  The value of a currency is also referred to as purchasing power.  The more a currency is devalued, the less you can buy with it because the purchasing power decreases.

The graph below shows the purchasing power of the US dollar since 1913. 1913 is when the Federal Reserve, which is actually a privately-owned central bank, took over the US banking system. As you can see, it’s been pretty much downhill since the Fed took over.  In fact, the dollar has lost over 96% of its value.  That means today’s dollar would be worth less than 4 cents back in 1913. How much longer will the dollar maintain its reserve-currency status at this rate?

Dollar Devaluation 1913-2013
Dollar Devaluation 1913-2013

How does the Federal Reserve devalue the dollar?  By printing more money.  Printing more money causes monetary inflation.  That means there are more dollars in circulation, but just because there is more paper money floating around, that doesn’t mean value has been created.  All you really get is price inflation.  Here’s an extreme example: Let’s say the Federal Reserve just gave everyone in America $1 million.  Wouldn’t that be great if everyone in America became a millionaire over night?  Unfortunately, nothing would change, except prices would increase. Think about it.  How much would you have to pay the plumber to come to your house, if he’s already a millionaire?

Fighting inflation

Unlike paper money dollars, which can be printed out of thin air, gold does not lose value.  In fact, gold doesn’t really go up or down.  When gold goes up, it really means the dollar is going down and when gold goes down, it’s actually the dollar getting stronger (increasing its purchasing power).  So by keeping a portion of your savings in gold, you offset the losses of your dollar being devalued by the Federal Reserve and reckless government spending.  When you buy gold or other commodities that resist inflation, it’s called a hedge against inflation.

Download What Has Government Done to Our Money? by Murray N. Rothbard

What Has The Government Done to Our Money
What Has The Government Done to Our Money

I can’t stress enough how important it is for you to read the book, What Has Government Done to Our Money? by Murray N. Rothbard, which you can download here (free and legal). This short book will give you an overview of the history of money, define money in simple terms, and explain how the current system is robbing us blind. What Has Government Done to Our Money? is easy to understand, even if you know nothing about economics.

Everyone should read this book, but I must warn you: After you read it, there is no turning back! You will be empowered with knowledge that will anger you.

After you’ve read it, you’ll probably want to do like I did and get a few hard copies to give away.  You can buy What Has Government Done to Our Money? for a good price.