The U.S. dollar has been the world’s dominant reserve currency for as long as most people alive can remember. Dedollarization talk in the past has never amounted to much, but with renewed calls to dedollarize, is king dollar about to lose its reign?
I should say never is a very long time. I shouldn’t say never. We’re nowhere near it today, how about that?
Peter Zeihan, geopolitical strategist
Most strategists will agree the dollar is in a safe space at the top for now. But history shows nothing lasts forever and a look back at previous world reserve currencies proves it.
Simone Del Rosario: If we look at the timelines of reserve currencies in history, I would say they average about a century in power. The U.S. is kind of getting up to that point now, so why is it so out there for you to think that another currency is going to rise and take its place?
Peter Zeihan: Well, I should say never is a very long time. I shouldn’t say never. We’re nowhere near it today, how about that?
So if you look at the big currencies of the past, first you had Spain, which was basically a metals-based currency based off the Potosi silver mines in what is today Bolivia. And for several decades, the Potosi mine produced more silver than the rest of the world combined.
So we got the worst kind of inflation you can possibly imagine out of that. Silver was available in limited quantity and so if you wanted to have trade, you had to get silver, which pushed up the value of the currency.
But the Spanish were literally mining the currency. And whenever the Spanish had an interest, they would go into a local market and buy up whatever they needed: equipment, steel, ships, men, whatever, to launch wars.
So you got disruption, you got supply-side inflation, you got demand-side inflation. At the same time, you had global disconnects and disruptions. So yes, it was our first true global currency, but it was never going to last because of the way the Spanish managed it.
The Brits came up with the pound and gold and that was a technological currency because they had their technological revolution at a very similar time frame. And as they became the global navy, combined with the industrial revolution, they were able to do it on military and economic terms and that was much better for everyone, unless of course you are one of the hundreds of countries that happened to be under the colonial boot every once in a while because the Brits really did control everything for a while.
That was ultimately displaced when the technologies of industrialization went other places. By the time we get to the end of World War II, France is industrialized, the Netherlands is, Germany is, Japan is, the United States is. And because of the destruction of the war, the United States emerged from the war with an economy roughly the same size as everybody else put together, meaning we didn’t even have an option as to what the currency would be then.
We are now entering a period where globalization is breaking down and the United States was already, of the major countries, the one least involved in trade. So again, at this moment, the United States is the only one on the board.
If you fast forward 50 years, if we get a different global economic system that is based on something else, if we find out what sort of economic model we’re going to get in an environment where demographic decay has been going on for decades and capitalism and socialism and fascism no longer work, then we’ll have a conversation about what the currency is going to be.
But right now, the United States has the healthiest demography of all of the G20 countries except for Argentina. It’s the largest economy by far. It’s the least involved in international trade and it has rule of law. So you might not like the United States for this, that or the other reason, but from a mechanical point of view of what makes a good currency, no one else even scratches one of those categories, much less all three.
SIMONE DEL ROSARIO: If we look at the timelines of reserve currencies in history, I would say they average about a century in power. The US is kind of getting up to that point now, so why is it so out there for you to think that another currency is gonna rise and take its place?
PETER ZEIHAN: Well, I should say never is a very long time. I shouldn’t say never. We’re nowhere near it today, how about that? So if you look at the big currencies of the past, first you had Spain, which was basically a metals-based currency based off the Potosi silver mines in what is today Bolivia. And for several decades, the Potosi mine produced more silver than the rest of the world combined. And so we got the worst kind of inflation you can possibly imagine out of that. Silver was available in limited quantity. And so if you wanted to have trade, you had to get silver, which pushed up the value of the currency. But the Spanish were literally mining the currency. And whenever the Spanish had an interest, they would go into a local market and buy up whatever they needed. Equipment, steel, ships, men, whatever to launch wars. So you got disruption. You got supply side inflation. You got demand side inflation. At the same time, you had global disconnects and disruptions. So yes it was our first true global currency, but it was never going to last because of the way the Spanish managed it. The Brits came up with the pound and gold and that was a technological currency because they had their technological revolution at a very similar time frame. And as they became the global navy, combined with the industrial revolution, they were able to do it on military and economic terms and that was much better for everyone unless of course you are one of the hundreds of countries that happen to be under the colonial once in a while because the Brits really did control everything for a while. That was ultimately displaced when the technologies of industrialization went other places. And so by the time we get to the end of World War II, you know France is industrialized, the Netherlands is, Germany is, Japan is, the United States is. And because of the destruction of the war, the United States emerged from the war with an economy roughly the same size as everybody else put together, meaning we didn’t even have an option as to what the currency would be then. We are now entering a period where globalization is breaking down and the United States was already, of the major countries, the one least involved in trade. So again at this moment the United States is the only one on the board. Now if you fast forward 50 years, if we get a different global economic system that is based on something else, if we find out what sort of economic model we’re going to get in an environment where demographic decay has been going on for decades and capitalism and socialism and fascism no longer work, then we’ll have a conversation about what the currency is going to be. But right now the United States has the healthiest demography of all of the G20 countries except for Argentina. It’s the largest economy by far. It’s the least involved in international trade and it has rule of law. So you might not like the United States for this, that or the other reason, but from a mechanical point of view of what makes a good currency, no one else even scratches one of those categories, much less all three.
