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How important is the concept of the US dollar as a reserve currency for the world – and how significant is it for gold if this reserve currency status is threatened?

David Wiedemer
July 6, 2016
Video Transcript

Announcer: How important is the concept of the US dollar as a reserve currency for the world and how significant is it for gold if this reserve currency status is threatened?

David Wiedemer: You have to have a reserve currency. Even if the world goes into a massive depression, you still need reserve currencies and there aren't many countries that can do it. China really can't do it, because it's a dictatorship. It doesn't have the free banking system you need. There's only a few options-- Japan, but Japan is a little bit too small and it's got some problems with its financial sector that make it not as desirable as reserve currency. Britain could be a reserve currency. It is...the Euro is a reserve currency. So those are your choices: US dollar, Euro, or the British pound. Obviously, the Euro could have problems in the future, if the Euro zone starts disintegrating. Britain is now a little bit too small to really do it. So, probably in terms of the technical reserve currency, the US will be it for a long time, but what we really mean by reserve currency is not so much this technical definition, but people's willingness to invest in US markets. In other words, right now the US is seen, and for the past 30 years has been seen, as a great place to put your money and the reason is because we've delivered. They have made whether it's real estate, bonds, or stocks, people have made huge profits investing in the US markets. When they talk about reserve currency, that's what they really mean, because of course unlike the technical reserve currency, which where we're going to be, the far more important willingness to invest in the US markets can change. If, whether than having massive profits for these people, we have massive losses, they're not going to want to invest. They're going to want to go into gold. That's what...that's what we really talk about when we talk about reserve currency is people's willingness to invest in US assets. If it isn't there, gold will do very well, US assets will not do well.

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