What happens if the US loses reserve currency status?
A reserve currency is the currency that people all over the world prefer to store their savings in.
Today that currency is the US dollar.
From the Middle East, to Asia, to South America — Whether it's a family that needs to keep some money around just in case or a country, most prefer to keep their savings in dollars.
But what would happen to America if that changed?
For one, we wouldn't be able to buy as much stuff from other countries.
When we sell China a Boeing airplane for $100 million dollars, and buy $200 million dollars worth of DJI drones, there is a net payment to China and DJI of $100 million dollars.
China (and DJI) are okay with this because they're happy to hold onto to $100 million dollars because it's the reserve currency.
They can use it to buy stuff from the USA in the future, not only Boeing airplanes, but advertisements on Facebook, vacations to America, or even US real estate.
And because the US dollar is reserve currency, they can also go to the Middle East and buy $100 million dollars worth of oil.
But if the US dollar loses reserve currency status, this option to buy oil in the Middle East (or Louis Vuitton bags from France or beef from Brazil) goes away.
All China and DJI can do is spend that extra $100 million on stuff from America, which they may not want to do. They may say "sorry, we're only willing to sell you half as many drones as before".
What does that mean for Americans? It means that that we don't get to spend $200 million dollars, we only get to spend what we export; our purchasing power gets cut in half.
And because you as an American earn your salary in dollars, that means that your purchasing power gets cut in half too, and that sucks.
And it gets worse.
We are a country of immigrants.
Many of the people who come here don't necessarily do so simply for a better life.
They come to earn dollars which they are proud to earn because everyone wants them back in their home country.
We depend on immigrants on visas for our way of life, from seasonal farm workers who pick berries to the best and brightest from all over the world who come to America to start a business, not just because that's our culture, but because those dollars they'll earn go so far back home, because of reserve currency.
It could get real bad.
We'd lose more than immigrants, we'd lose Americans too, who would go to other countries.
A loss of reserve currency might be more like what has happened in South Africa than what happened in the United Kingdom (which lost its reserve currency to the United States).
The USA is a country of immigrants, not only the people who came here, but even the people who were born in the US.
We're all from somewhere else, and as such, we Americans who moved once, will move again.
And that would devastate the American economy and those who choose to stay...
So how do we stop the US from losing its reserve currency?
We need to make major changes and fast.
The dollar is like a gift certificate to America's store.
What do you prefer:
A gift certificate to a random coffee shop in St. Louis or one to Starbucks?
Starbucks. There is one on every corner. You can spend that gift card everywhere. And the coffee is not bad, which is a bonus.
How about a gift certificate to Amazon or one to Sears/Kmart (a half bankrupt brick and mortar retailer)?
Amazon! They've got all the stuff you could ever want and the quality is better than Sears/Kmart's.
So how do we ensure that the dollar is like an Amazon or Starbucks gift card and not one that people can't wait to get rid of?
- Let dollars be used everywhere. Don't seize other countries' dollar savings, even if we don't like what they're doing. How would you value your Amazon gift card if they started saying they couldn't be redeemed because you had done something they didn't like? Exactly. Don't do that to other countries.
- Invest in our country, not overseas. People will be happy to hold dollars if there are lots of cool things that you can buy with them. For America to make cool things, we need to invest in our education and infrastructure so our people have the brains to come up with cool ideas and then the roads, internet, and electricity to send them to other countries.
Unfortunately, for the last couple of years we have done the opposite and if this keeps up we will pay the price.
The CHIPs act (giving 100s of billions to build chip plants) is a step in the right direction, but a factory is like a university.
It doesn't matter where it is and how it looks if the professors can't teach and the students are unqualified to be there.
While we have reserve currency status we have to invest in our people so that we can run that factory (or that university) well and we're just not doing that anymore.
The United States is a big blessed country with an amazing brand.
If you make life here amazing, people will want to hold dollars forever and we can stay rich as a country.
When people in foreign countries see videos of crazy crime from the US on TikTok, how do you think that makes them feel about holding dollars, about taking a vacation to California where people walk right out of the stores with whatever they want to buy?
Not great.
Give us rule of law (fair enforcement of law not based on who you know), give us meritocracy (the best and the brightest get ahead; the lazy don't), and give us the freedom to say what we want without losing our jobs or bank accounts.
Do that and we'll be the envy of the world for another 100 years!
And they'll continue to hold those dollars that we depend on for our way of life, because they'll feel confident in being able to spend them and will be able to on the great stuff, services, and life that we have in America.
