Email of the day 1
Comment of the Day

May 22 2014

Commentary by David Fuller

Email of the day 1

On world reserve currencies:

“Do you think that the $400 billion gas deal between Russia and China was concluded in US dollars or is this the first step in replacing the world reserve currency.??”

David Fuller's view

Welcome to the Fuller Treacy Money service.

My understanding is that the USD was not used for this China-Russia deal; there was no need to, and Russia is particularly keen to avoid possible US sanctions by use of the dollar.  However, the deal was reported in USD by the Western press for ease of understanding.

The USD will certainly not be replaced as the world’s main reserve currency anytime soon, as it is obviously still the most important one.  However, any freely traded and highly liquid official unit of exchange can also be used as a reserve currency, if people wish to use it for that purpose.  Despite the post-2008 credit crisis problems, we live in an increasingly multipolar world in terms of economic powers and their currencies.  This is a good thing in terms of global GDP growth.

Lastly, gold has been universally regarded as hard money throughout human history.  This is not by chance but due to its unique characteristics of beauty, durability and relative scarcity.  For these reasons, gold has appreciated against all fiat currencies (paper money) over time.  There is no reason why this should ever change.  The price of gold will inevitably fluctuate but many successful investors who know their financial history tend to buy gold when it is temporarily out of favour.

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