Living in Moscow, I’ve seen first-hand the seething anger over punitive economic sanctions and the American use of its current financial hegemony to make life tough for money-in-motion in the former Soviet Union. The Russians have a love-hate relationship with the dollar. Historically, they have seen the currency as a safe haven of value and hoarded dollars every chance they could in an attempt to maintain their wealth. Now with everything American being thrown under the bus, the dollar is out of favor.
The threats of further sector-wide sanctions, which would have devastating, short-term effects on the Russian economy, will only hasten the fall of the dollar as a vehicle for trade settlement and a store of value in non-Western countries. The Russians are a clever people; and over time, they will figure out a way to get out from under American financial pressure.
However, there is another issue lurking in the shadows that could cause an even faster decline of the US Dollar as a reserve currency across the globe. The Foreign Account Tax Compliance Act or FACTA is scheduled to go into effect on the first of July this year. This overreaching piece of legislation is a direct result of the out-of-control spending and inability of the American government to responsibly manage its own finances. To put it simply, because we can’t stop spending money, we are going to look for it under every rock all over the globe–and damage our currency in the meantime.
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FACTA will require any foreign-based bank that deals with American citizens to report to the IRS. Yep, you heard it right; they will have to provide data to the IRS or face dollar-based penalties that would make it harder for the bank to deal in dollar-based transactions. Right now, these penalties are a real problem for any bank, as most global trade is based in dollars. Just ask the Iranians how they are hurting under their current regime.
So what’s the obvious answer to this arrogant and burdensome projection of American economic power? You guessed it! Banks will simply stop using the dollar and look for other ways to settle trade accounts and store economic assets. What most American politicians and bureaucrats don’t realize, as they pile-on more and more silly legislation, regulation, and monetary policy, is that the USD has a reserve currency bid, or demand across the world. It’s a special privilege we have, and we enjoy plenty of economic benefit from it.
As the bid goes away, and as the anti-USD forces gather steam, we will suffer the consequences. Or better yet, our children will. Vince Miller, senior market strategist with the Birch Gold Group, puts it simply: “Over the years, the dollar has increasingly becoming an albatross around the neck of foreign financial institutions. They were already getting tired of having to play our games, and now FATCA may very well be the last straw that pushes them to throw up their hands in disgust and walk away from our imposed headaches.”
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So if you look at what is going on from a thirty thousand foot level, you have a multitude of factors pressuring the reserve currency status of the USD. The Russians and the Chinese are leading the BRIC countries to dump the dollar as a trade settlement vehicle. FACTA will push countries all over the world to stop dealing with American clients and to stop using the dollar altogether.
Our national debt is approaching twenty trillion dollars, and the world wonders if we have the political will or economic ability to make good on our financial obligations. And to top it all off, the Federal Reserve Bank of the United States is printing money so fast that they can’t build the printing presses fast enough. The Fed’s balance sheet has ballooned to over four trillion dollars!
Birch Gold’s Vince Miller adds, “The writing has been on the wall for quite some time now: The dollar is a fiat currency that has been losing value since the very first day it went into circulation. It will continue to lose value over time, and eventually it will likely be replaced as the global reserve currency. With the implementation of FATCA, that ‘eventually’ may be a lot sooner than we had ever thought.”
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To put it bluntly, this story doesn’t have a good ending. Throughout history, this has all happened before; it’s true that history repeats itself. The Romans, the Spanish, and the English all devalued their currencies and faced the consequences. It’s no different this time.
This article is brought to you by Birch Gold Group which helps Americans protect their hard-earned savings from the dollar’s ongoing loss in value with investments in physical gold and silver. To learn how precious metals can help to safeguard your future from inflation and geopolitical instability, visit www.birchgold.com.
The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by the owners of this website.
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