In December, the US currency dropped in value following the statement by the Fed chairman Jerome Powell who said that the interest rates are now just below the neutral range. Bankers observe such fluctuations with calm, albeit with concern: by the end of 2019, they reckon, the value of the US dollar will enter a downward trend for many years to come. As the Fortune100 billionaire and investor Ray Dalio affirms, the USD value will collapse by 30% due to the 'triple US deficit', which ultimately will lead to the inevitable: dollar will lose its status as the global reserve currency.

Costly currency

Since the end of 2017, the Fed has tightened monetary policy, consistently raising the base rate. The regulator's logic is simple: the crisis is now over, the US economy is recovering and therefore it is time to end the incentive measures. This year alone, the Fed raised its base rate three times. The cost of funds rising at this pace have put many companies in a difficult position: it is increasingly expansive to take new loans while the old debts need to be settled. With no delay, Trump has criticized the new strategy of the regulator, claiming that the FRS has “gone crazy” now posing a major threat to the American economy.

Meanwhile, JPMorgan Chase analysts came up with a formula to see how the changes in the monetary policy would affect the US dollar. According to their estimates, the decline will begin by the end of next year and the US currency will not be able to reverse the downward trend: it will last for years.

This trend will be a result of the US economy cooling off as well as of a pause in the cycle of rising base rate in the second half of the year.

“Ultimately, the trajectory is for a downward move in the dollar over a multi-year period. In the second half of next year, if the Fed did pause, if the US economy were decelerating, if the rest of the world stabilised or improved a little, you could see how the dollar could fall”, Bloomberg quotes global market strategist Gabriela Santos.

According to JPMorgan economists, the US economy will slow to 1.9%. “A decline in growth to 2% a year is a scenario under which a multi-year decline awaits for the dollar,” financial analysts affirm.

According to the experts, the triple US deficit will scare away the foreign buyers of the treasury bonds, which will in turn provoke an explosive growth in their profitability and a dramatic fall in the dollar exchange rate by 30%.

In this case, the experts affirm, the US currency will inevitably lose its status of the world reserve currency. The analysts do not specify what would replace the dollar, but assure that this scenario would be the “worst nightmare” for the United States.

Gold rather than dollars

Ray Dalio also points to gold as one of the most reliable instruments for hedging currency and political risks. There is certainly a rational explanation for this: in the event of a collapse of the dollar system (encouraged, among other things, by the huge unsecured debts), gold will unquestionably keep its value. While maintaining the function of a settlement instrument in global trade, this asset reduces dependency on any currency.

It is not surprising that Russia increasingly prefers golden ingots to dollars. The gold reserve of the Russia already reached a record level, while the share of the US treasuries in the CBR international reserves decreased nearly to zero. “I’m sure that a global reset will happen when the world governments feel the need to get rid of debts and they tie everything to the price of gold. That is why countries like Russia and China are accumulating gold - they know what might happen a few years down the line,” Keith Newmeyer, First Mining Gold Chairman of the Board has stated.