'Dollar Depreciation': Will gold replace greenback as global reserve currency?

In late November, the US dollar's exchange rate shrank abruptly after Federal Reserve Chairman Jerome Powell stated that he considers the US central banking system's benchmark interest rate to be near a neutral level. Sputnik looks into whether the dollar will manage to preserve its status as the world's reserve currency.

Expensive Money

Since the end of 2017, the Federal Reserve has repeatedly tightened its monetary policy, periodically raising interest rates.

US President Donald Trump, for his part, lashed out at the policy pursued by the Federal Reserve, which he said "went crazy" and has become a major threat to the US economy.

Years of Dollar Depreciation?

In this vein, she quoted JPMorgan Asset Management analysts as predicting that next year may see a subsequent dollar depreciation which they warned could last for years.

The cooling of the US economy and a potential pause in the Federal Reserve's cycle of rate hikes may add significantly to the greenback's slump, which the analysts claimed will start by the end of 2019.

David Kelly, the asset manager's chief global strategist cautioned, in turn, that in case the US economic growth slows to two-percent and maintains it, it will be a "scenario in which the dollar could fall for multiple years."

'Triple Deficit'

Billionaire Ray Dalio, founder of the world's largest hedge fund Bridgewater Associates, also suggested that the economic situation will add to the dollar's fall.

Speaking to Bloomberg, he insisted that the greenback may collapse due to a further increase in the so-called "triple deficit": the budget deficit, the trade balance and the current account.

He warned that the US faces the risk of losing its "privileged position of being able to borrow too much in our own currency."

According to Dalio, the scenario of the dollar losing its status as the world's leading reserve currency may prove the "worst nightmare" for the US. At the same time, he declined to elaborate on which currency could replace the greenback.

Gold, Not Dollars?

Separately, Dembinskaya says, Dalio pointed to gold as one of the most reliable instruments for hedging currency and political risk.

In late July, the Russian Central Bank reported that Moscow had bought about 106 tonnes of gold since the start of 2018, with total reserves approaching the 2,000 tonne mark. The buy-up comes after a US Treasury Department confirmation that Russia was no longer among the top holders of US bonds.

In this regard, Keith Neumeyer, chairman of the board of First Mining Finance Corp., a Vancouver-based development firm, suggested in an interview with Sputnik that "a global reset" will take place when the governments of the world have to get rid of debt, which will prompt them to tie everything to the price of gold.