The American economy has taken a real beating so far this century. The early 21st Century I'm sure will be remembered as being a time of upheaval and change, particularly for the United States. Before the Dollar, there was the British Pound. The Pound was once the world's reserve currency backed up of course by gold, but more importantly by the British Empire. Who would have thought after surviving two World Wars the Pound would be usurped as the world's reserve currency by the currency of the former British Colonies? Well, that's exactly what happened.
The United States guaranteed that each Dollar could be traded for its current value in gold. This is important as America's financial problems at present can be traced back to 1971 when Richard Nixon abolished the Dollar/Gold standard, turning the Dollar into a fiat currency backed by, well, the Federal Reserve. Now this is no longer the case (being backed by gold), the Federal Reserve can print as much money as they want, because they are no longer limited by the amount of gold available and therefore exchangeable for US Dollars. The problem with this is that printing more and more Dollars and putting them in circulation devalues the currency and WILL eventually lead to hyper-inflation. This can now be seen in the performance of the Dollar against other world currencies but, more importantly, in its performance against gold. Don't be fooled by its recent Bullish performance, the Dollar will not make it out of this decade alive.
Alternatives to the Dollar
Of course, as the world has approximately 60-70% of its reserve currency in Dollars, they are not going to sit back as the value of their reserves fade away. China has recently paid a lot of interest in gold and silver and there are rumours they may be toying with the idea of putting their Yuan back on a gold/silver standard to boost confidence in their currency and gain support for the Yuan to be the new reserve currency. My opinion is that the new reserve currency will be, the Euro.
Some of the oil producing countries have already spoken about switching to the Euro. The Euro is in a different class to any other of the worlds currencies because its back by 16 nations, all pretty much independent from each other. This makes the Euro unique as a currency and provides stability, despite the recent issues with Greece which I believe stem from a time before the Euro and was also down to a lot of Government incompetence and public ignorance. The Euro will rally back and reach parity with the Pound, and then it will be introduced in Britain. Then the Euro will then take its place as world's number one reserve currency.
