Say Goodbye to the U.S. Dollar as You Know It
By: Nathan Young
Tags: Government, Money, Saving, Investing, Finance

Photo by Ashutosh Sonwani from Pexels

Money is transforming right before our eyes. Looking back 20 years, we were just beginning. Now, we have more financial tools and technology then ever before.

However, these financial advancements are killing the Dollar.

Digitization

The first major impact on the Dollar has been the digitization of money. Cash is losing its purpose as people transact through cards and smartphones. Coupled with the invention of Bitcoin and other cryptocurrencies, it seems to be a lose-lose situation.

Recently, the United States issued a statement they are actively testing a new centralized digital currency called FedCoin. We already transact largely online, but with this new product it gives the government greater control on tracking wealth.

In an article published by LegacyResearch.com:

If I’ve got a $100 bill in my wallet or a bunch of 10s and 20s, I can spend them on anything I want with anybody I want and nobody knows. With blockchain… [the feds] know exactly who’s getting the money and what it’s being spent for.

This may be unsettling but unfortunately this is where we’re headed. However, it isn’t all bad.

2020 has been a year no one expected, with the pandemic and economic hardships. A positive to FedCoin and the technology behind it is the government can send stimulus money directly to individuals quicker.

In early 2020, the initial stimulus was sent using 2019 tax return information. If you received your refund through direct deposit, the government used that information to deposit the funds. For those receiving a check, the wait times were much longer.

With FedCoin, no one would have to wait for payments, but it comes with a cost.

Inflation

Next, inflation continues to put negative pressure on the Dollar. Funny though, how can inflation be a problem when recent historic inflation rates have been low? Glad you asked!

First, the Fed wants and expects inflation to surpass 2% once the economy returns to normal. According to the New York Federal Reserve:

New survey data show that the year-ahead median inflation expectation decreased to 2.8 percent in October from 3.0 percent in September.

Right now that doesn’t pose a huge threat, but once the economy bounces back we can expected inflation to climb. The problem arises if inflation lasts too long or the Federal Reserve loses control of inflation, leading to hyperinflation.

The currency is still fragile from the 2008 Great Recession and the QE that took place. Now, with the pandemic the Fed continues to print money and provided liquidity to the marketplace through unprecedented measures.

Secondly, we’re already feeling the impacts of inflation through a devalued Dollar. All you need to do is look at your grocery bill, gas prices, or other everyday items. When the economy returns with a weakened Dollar and increased inflation expectations, you have a recipe for disaster.

Now, this could all change quickly. The Dollar could recover with strength and inflation could remain at 2% or slightly lower.

We can look at history, but unfortunately the United States has never been in a position of negative rates and unprecedent balance sheet expansion, with no talk of decreasing said balance sheet.

Evolution

Lastly, we can look at the death of the Dollar as a natural evolution of society. A simple glance back at history and we’ll see that money has changed quite frequently.

In the United States, money used to be made with real silver and the currency was backed by precious metals. During the Civil War, towns and cities created their own local currency. Today, technology has allowed money to be digitized and advance from the good ol’ Greenback.

As with business and life, the natural tendencies lean towards innovation.

Currently, we have the means to reinvent currency and we could easily be in the midst of just that. Would there ever be a truly global currency where all countries operated under one? I highly doubt it.

But, we can look at developed countries and quickly see governments are looking to replace our outdated fiat currency system.

Now the death of the Dollar won’t happen overnight, but signs are pointing to a shift in how we use and transact with current fiat currencies. In a world where interest rates may never return to normal, inflation is encouraged, and people are struggling to increase income, change is inevitable.