The US solar has long been the world reserve currency and while that is likely to continue this is not guaranteed. Because of the US long standing twin deficits, more recent massive expansion of debt and other problems there is visibility for the US to lose some of its lead, so to speak, against other countries. A better way to think of it may be not so much that the US is losing ground but that other countries are gaining ground.
Many transactions, not involving the US, around the world have been done in dollars for years but slowly and quietly trade that use to involve dollars are avoiding the middleman. Recently certain types of trade between Brazil and Argentina stopped using dollars, there is perpetual chatter to have oil trade in euros and if at some point China consumption exceeds US consumption (which seems inevitable given a population of 1.3 billion versus 320 million) then the yuan potentially becomes a competitor for the greenback.
The catalyst for the post is something from the FT about Russia and Kazakhstan floating ideas about different ideas for a world reserve currency. There obviously will not be a bell ringing announcement ok gang we are making a few changes but if this occurs it will be very gradual, probably already started and will become important to US based investors.
My intention with this line of thought is not so much to try to figure what country will win but figure a good way to protect the portfolio in case the US does become a little less globally relevant. For now my thoughts are to have a heavy weighting to foreign equities with the expectation of having an even larger weight to foreign in the future. For now I have a small weight to foreign fixed income but expect to increase that in the coming years. I have traded a couple of currencies in the past, have not had a position for a while but do expect to go back into currency ETFs again in the future.
There is no rush to make these moves but the time to start studying this is now.
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