How Safe is Your Dollar

Examination-Of-The-Us-Dollars-

How safe is your dollar?

You work hard and if you’re lucky, you save those hard-earned dollars for a rainy day.

But just how safe is your dollar? Is it safe under the bed? In the bank?

Life gets in the way and we all live our lives from day to day, but stop and think – what would happen if the dollar collapsed and is that scenario likely? In the period between 2002 and 2012, the dollar fell almost 55% against the euro. This period saw the emergence of the global recession and the US debt almost tripled from $5.9 trillion to €15 trillion. Scary stuff!

The dollar then decreases in value as organisations and countries seek an alternative currency. The gold standard was abandoned in the 1970s and the dollar then became the world’s reserve currency. So what does this all mean for us? 61% of foreign currency reserves are in US dollars, as the dollar is strong. If another currency makes it’s way to this ‘strong’ status, this could mean trouble for the mighty dollar.

Fortunately, the euro has weakened due to the Eurozone debt crisis, but it comprises of just under 30% of foreign currency reserves. Some countries have put a case forward for a global currency, however, this wouldn’t happen quickly and a replacement for the dollar would seem to be a long way off. Others have suggested that the Bitcoin might be a suitable alternative. The online currency isn’t managed by one central country but it seems to be emerging in it’s own right as an acceptable spending power. Watch this space!

History tells us to be aware of global events and their potential impact on currencies. In the 1970s, the Mexican peso almost halved overnight. Argentina has been battling economic turmoil for over six decades, Greece has witnessed civil unrest due to measures to control public spending and Ireland had to be bailed out of debt! Many global and economic factors can ultimately cause the dollar to weaken, and when it happens, not a lot can be done to prevent it.

If the dollar did collapse, the effects would be felt around the world. Investors, organisations and other countries would seek an alternative currency, interest rates would go sky-high, as would inflation. All your hard-earned dollars, whether under the bed or in the bank, wouldn’t be worth very much at all. Businesses wouldn’t thrive in this environment and high unemployment would most definitely emerge. Hello recession!

After all this doom and gloom, is there any hope and how can you protect yourself?

You need to protect yourself from a gradual dollar decline. Keep an eye on world events and read between the lines. Watch the markets and the strength of the dollar. Diversify your assets – don’t keep all your eggs in one basket. Remain as mobile as you can in case you need to move quickly. Keep your assets liquid and ensure you have a lot of transferable skills – you might just need them.

How likely is it that the dollar will crash? In truth, probably not very likely. It’s not in anyone’s interest to allow this to happen. However, a gradual decline is a more realistic possibility as other currencies gain momentum and become stronger.

History tells us a lot but it also teaches us a lot too. Most economic occurrences come in cycles and forecasting allows for sustainable methods to be put into place to protect us but it doesn’t do you any harm to remain informed – and prepared!