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Is the world's reserve currency in crisis?

Harry Browne, Richard Russell
January 6, 2004
Video Transcript

Host: In the course of these interviews, the analysts that we spoke to talk about the U.S. dollar being the reserve currency of the world. Now, it's important to understand what this means, because of this single fact there's so much at stake when confidence in the dollar declines, not only for the U.S. but for the entire world, who keep virtually all of their reserves in U.S. dollars. Now as confidence continues to weaken internationally in the dollar, two very serious problems could occur. One, countries may be less and less willing to finance the U.S. debt paid back by dollars coming off the printing press. Two, countries holding dollars may return or repatriate a flood of dollars back to the U.S. Now many economists feel this would contribute to a massive wave of inflation the likes of which the world has never seen. Now, it's ironic that what helped to establish the dollar as the reserve currency of the world was the fact that it was backed in part by gold. You may be familiar with the saying, "Sound as the dollar, good as gold."

Harry Brown: It's important to realize that the dollar is the number one form of money in the world. People all over the world hold dollars for one or another reason for international trade, as a hedge against their own currencies, just a store of value, there are all kinds of reasons that people have. When they have need for something other than their own currency most people turn to the dollar as long as things are normal, but when they see inflation in the United States, not at 1% or 2%, but at 5%, 7% or 10%, they really get worried about it and a lot of the people holding dollars will then turn to the number two most popular form of money in the world and that's gold.

Richard Russell: The dollar is a reserve currency and we issue debt in our own currency. We can pay off debt just by printing money, no other country can do that, but it means that gradually other countries see what we're doing and seeing what we're getting away with and they'll start, and they are, diversifying out of dollars. We know China is doing that. We know Russia is doing that. Before long, all central banks will be diversifying out of dollars. They see the dollar as a very chancy situation.

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