Is the dollar really dead?
That’s all that seems to be in the news of late recent. Reports say that the dollar is losing global reserve status and cannot remain the world’s reserve currency for much longer.
With China and BRICS looming over the horizon and more countries getting rid of the dollar backing of their currency, it looks like the U.S. dollar is weakening.
It might even be replaced by the Yuan.
But the facts at hand show it’s unlikely that the dollar will be replaced. Not soon, anyway.
Why?
In today’s episode, I’ll show you why the dollar isn’t really dead. You’ll also discover why China’s move to remove the U.S. dollar as a global reserve currency is flawed and unlikely to work.
Listen now.
Show highlights include:
- China’s sinister plan to replace the dollar as a global reserve currency. ([1:50])
- 4 reasons the yuan can’t destroy the dollar (or replace it as the world’s reserve currency). ([3:47])
- How political, religious, and militant differences can hinder the progress of BRICS to replace the dollar. ([4:11])
- Why Chinese patents are less valuable than US patents globally (and how this protects the dollar against foreign threats). ([10:28])
- The unlikely link between ‘dollar-crashing’ headlines and gold sales. ([13:02])
TRANSCRIPT:
Do you want a wealthy retirement without worrying about money? Welcome to “Retire in Texas”, where you will discover how to enjoy your faith, your family, and your freedom in the State of Texas—and, now, here’s your host, financial advisor, author, and all-around good Texan, Darryl Lyons.
Darryl: Hey, this is Darryl Lyons, CEO and co-founder of PAX Financial Group, and you’re listening to Retire in Texas. Thanks for tuning in. Let me give you the disclosures that this information is general in nature only. It’s not intended to provide specific tax, investment, or legal advice. Visit PAXFinancialGroup.com. Also, I want to remind you to text the word “TEXAS” to the number 74868. That’s “TEXAS” to the number 74868. [00:53].7]
This particular show, I want to discuss, really, I guess the question, is the dollar dead? Are we just losing our place on the global stage to China? There’s a headline in CNBC that said, “The dollar seen losing global reserve status,” and another headline, this was from the Economist, “The disappearing dollar: how long can it remain the world’s most important reserve currency?”
Then when we think about this, we certainly can’t help but think about the end of Rome to the 5th century, Ottoman Empire, the early 1900s, and even how the UK had transitioned about World War I to America and handed them the baton. And so we ask ourselves the question, is it time for our country to fall? We can’t help but ask the question, will China replace us? So, how might this all translate? [01:51].8]
It looks like China just simply wants to crash the dollar and make it completely worthless, and they will have all the power. The question is, when will they start this process of replacing our dollar? And you have to think about it in terms of groups and one group that you might have heard of is BRICS. You might have heard, on a previous show, I’ve talked about BRIC, Brazil, Russia, India, and China. The “S” is South Africa. You compare that to the G7, which is Canada, France, Germany, Italy, Japan, UK, and the U.S., and there’s a significant population difference. The BRICS is about 41% of the U.S. population, and the G7 is about 10%.
The BRICS, that BRICS group also has now gotten to a point where, economically, they’re just as powerful as the G7, so China has put together a team. Think of it like a basketball team that is now bigger, taller and faster than our team, and they’re not done recruiting. They’re recruiting Egypt and Turkey, and even Iran, and they’ve launched this financial ecosystem, too. [03:02].8]
This wasn’t long ago, they launched something called the New Development Bank, and this bank’s design is to support projects all through these countries. Okay, we’re going to have a common bank that can support projects through loans and guarantees. There’s even some equity participations, different financial instruments. The idea is, okay, all these groups are coming together and they want to be the new power. And if that happens, the dollar is done, or is it?
I think what we need to do is we need to look at possibilities versus probabilities. Sometimes we get those two confused. It’s possible, but is it probable? I say it is possible. I say it is not probable, and let me give you reasons why. I’ll give you four reasons why I don’t have conviction that the yuan, the Chinese currency, and the BRICS will simply destroy the dollar and we’ll be left with a paper that’s worthless, and I’ll give you four reasons why. [04:08].1]
For the first reason is for the dollar to be replaced, all of these countries that we’re talking about, the BRICS, Brazil, Russia, India, China, and even South Africa and the other ones, they have to get along. Texas can’t even get along with California, and you’re expecting all of these countries with different political, religious, cultural, and even different ways they manage the security, the troops that they have, and I’ll talk about that in a second, you’re expecting all of them to get along for an extended period of time? Look, it’s not probable.
Even with this new development bank that I just mentioned, when the Russia Ukraine war happened, this new bank had to say, “Okay, we’re going to put all Russian transactions on hold.” They already ran into trouble with Russia. This new bank already had to say, “Look, if we don’t cut ties with Russia, the global rating system called Fitch is going to downgrade us.” So, they already had a problem. This new bank already had a problem because one of its participants is, basically, insolvent now. [05:04].1]
Then you have to ask yourself the question, South Africa, and America has been over there helping for years and years and years, missionaries have, but they continue to have corruption and even rolling blackouts, and everyone knows in business that China has two sets of books—one set of books for those that are investing and another set of books that are the real books.
India and China, I mean, they have conflicts, and conflicts as recently as 2017 that still escalate in the Himalayas. There are troops that are trying to put some roadway through kind of a rural part of the country and these Chinese troops are trying to kind of take over the land in India, and there has been some heated tensions between China and India, and they’re partnering on this bank, and you’re kind of scratching your head going, “Wait, they have troops that are pointing guns towards each other. It’s not imminent, but they’re also being friendly, financially. How’s that going to work out?” [05:57].5]
And how are Iran and Iraq? How are they going to stand by and watch? Everyone knows China has reduction camps with Muslims in them. I say reduction. Reeducation camps. You could consider them reduction camps, because they have had some what has been considered birth control measures with this group of people that I believe are mostly Muslims. I’m not sure that Iraq and Iran will stand by long enough to consider that acceptable.
I was also listening to a podcast the other day, and I heard the Voice of the Martyrs podcast, a good podcast, and there was a Christian missionary there that was arrested, but when he gets arrested, he says you don’t get arrested and it’s like, Okay, now we’re going to have a jury trial, of course. He goes, “No, they’re enforcing the law.” When you get arrested there, they’re forcing the law. There’s not an innocent until proven guilty. [06:51].7]
This is really an improbable relationship between these BRICS countries. They all have to get along politically for an extended period of time, religiously, culturally, militarily. And I know the U.S., we have our problems, but, man, we work it out, barely. I mean, sometimes Texas wants to secede. I mean, for you to suggest that it’s going to be a rapid transition, you’ve got to make the assumption that that’s going to be stable for an extended period of time, and that’s just the first point.
The second point is you also have to assume that the countries that hold the U.S. dollar are going to take their dump truck and they’re going to back it up and dump it, and just drop the dollar. See, banks hold currencies for rainy days, and then what banks do is, banks all around the world, they get this currency, right, and they hold on to it, and then just like any other investment portfolio, they diversify it in different currencies. They use currencies because it’s liquid. It’s easy to get rid of and buy more, and it’s a functional system.
If you look at those reserves at banks, you look at how much of the reserves do they hold in the United States dollar? It’s not 10%. It’s not 20%. It’s 60% of the reserves are in U.S. dollars. And then how much are in the Chinese yuan? 2%. [08:10].3]
Now, yes, it’s very likely that banks start to feel more comfortable with the Chinese yuan, but to get from 2 to 60, that’s a long runway. That’s a long runway. Now, China holds a lot of the U.S. debt. They hold the most next to Japan. Now, the U.S. has a lot of debt, as we know, 29 trillion. China has a trillion of that debt.
So, China came in and said, “Look, we’re going to back up the dump truck. We don’t want it anymore.” That’ll crash the dollar. Does China win in that transaction? Does China win in the transaction where the dollar has crashed and the United States can no longer buy services and purchase products from the Chinese? Businesses would shut down. China cannot dump the dollar. They can’t because it would destroy, absolutely destroy their economy. [09:01].8]
Now, they know that, and so what they’re trying to do is decouple from the United States and build working relationships with other countries and increase demand domestically. They know they’re too tied to the U.S. I mean, it’s not lost on them. They’re trying their best to build relationships with Brazil, Russia, India, South Africa, and these other countries, because they know they’re stuck. But there’s no credible threat right now that there’s a dump truck being backed up and dumping the U.S. dollar. None.
In fact, when the market crashes, if you look in just recent history, ’08, ’11 when the European crisis [happened], Covid, where did the entire world go to when things were scary? They went to the dollar. They didn’t go to any other currency. So, recent history tells us that there’s no threat of a dollar crash.
Number three, and let me pace myself a little bit better here because I know I’m being long-winded. Number three: innovation will drive the market and the U.S. is “the” most innovative country in the world. The United States produces 25% of the world’s GDP and we only have 4% of the population. California, it’s more productive than India. Texas is more productive than Brazil. [10:13].4]
A person in the United States, not defined by their purpose, which in my faith, everyone, I believe everyone has a unique purpose, but in terms of their productivity and their efficiency, they’re nine times more productive in the U.S. than anywhere in the other countries.
You can also measure this by patents. Patents define innovation in a lot of ways. You’ve got to get a patent to be innovative many times. Now, China has way more patents than anybody else, 695,000 in 2021, way more. The United States only has 327,000, and you might say, “Wow, China is more innovative.” But then, when you look a little bit, you look and peel back the onion, you realize that only 10%, 10% of China’s patents, have any value. Many of them lapse. In fact, one Chinese patent expert called them all trash, because they’re playing a game over there. They’re getting patents for showmanship, but they’re not going anywhere. [11:07].6]
Think about the global brands if they were going anywhere, the top global brands, Apple, Microsoft, Amazon, Google, Coca-Cola, Disney, Nike, Tesla, Intel, Facebook, which one of these are Chinese companies? Innovation happens in the U.S. and it’s unbelievable. It’s because we’ve fostered a culture of innovation and risk-taking.
Disney, I’ll give Disney as an example. Disney puts a theme park in China. Hey, Disney, good job taking all that risk. But to do that in China, only 43% of that theme park in China is owned by Disney. The rest is owned by the Chinese government. That doesn’t foster a cold risk, does it? Not a lot, and I certainly don’t think so.
Okay, my last point, and I’ll be quick on this one here. China’s population is declining. That one child policy is hurting them. Do you know of anybody that’s really immigrating to China? Yeah, I know the United States immigration system is totally messed up, but the reality is thousands and thousands and thousands and thousands of people are immigrating to the United States, and as a result, we’re having a population explosion. [12:11].5]
Yes, it comes with issues, a hundred percent, but we do not have a threat of population decline like China and they know it. If they do not make material progress, their population structure will crumble beneath them, it’s unbelievable. And women are saying, hey– They’re trying to encourage women to have babies, and they’re saying, No, I’m not. So, I have zero reason to believe that the probability of the U.S. dollar going away is happening.
I also want to make sure you’re clear here, as I express these four points—the four points are, one, I don’t think those countries are going to get along for an extended period of time. Two, I don’t think anyone is backing up a dump truck to drop the dollar. Three, I think innovation leads and we’re definitely the most innovative country in the world. And, four, China has a real population-decline problem. [13:00].0]
But let me tell you this, too, before I close you out. Those two headlines I told you about, let me tell you, the first one is from CNBC. “The dollar seen losing global reserve status.” Scary headline, right? That was a headline in 2011. How about this headline? “How long can it remain the world’s most important reserve currency?” from the Economist. When was that headline? 2004.
I want you to start paying attention to the details here, because 90% of the time that I hear about the dollar crashing, it is followed by a gold salesperson. It is followed by somebody who’s selling gold. I’ve seen I can’t say all the videos because there’s a ton of them, but I have YouTubed this stuff, read articles. There’s certainly possibilities of the dollar losing its status, but the probabilities of it happening immediately and anytime soon is not likely. [14:00].1]
Part of this I actually like, because the United States does need to get its act together. It feels like this to me, and this one, I’ll close us out. It feels like this. It feels like, if there’s a house and there’s a couple kids in there, and the parents are alcoholics and they’re fighting, and the kids are trying to tell the parents, “Hey, I need you to get help. I need you to get help,” and the parents aren’t listening to kids. They’re still alcoholics. They’re still fighting and the kids say, “I need you to get help,” they’re crying. Finally, the neighbors come in and say, “Hey, if you don’t do something we are.” That’s what it feels like.
It feels like everyone in the country has been saying, “Government, you’ve got to stop printing so much money. You’ve got to stop spending this way. These green energy initiatives are not rational and there’s indirect consequences of your decisions, and I think we need to make some rational decisions.”
The government over the last . . . it doesn’t matter who is in office, has not really listened to the people that well, and so these other governments are saying, “Fine, we don’t see you stewarding the dollar well. We’re going to try to come up with our own mix,” and because of that threat, my hope and prayer is we finally get our act together, because if we don’t, then we won’t have that valuable resource of the United States dollar being “the” currency of the world. [15:16].2]
For that reason, I see a little bit of hope that we might get our act together. I am holding onto that hope. And I also believe that the probability isn’t high, and at the end of the day, I believe in America, as you know. I mean, I own a business. I have a family. I see a lot of good stuff happening as I go around the country and talk with business owners and people that have a drive and a willingness to take risks, and so if China wants to take what we’ve got, then I say, come and take it.
Thanks for hanging in there. Hope you enjoyed this. I have a lot of confidence, and I think if you think long term, not only will you think differently, but you’ll have more hope. Have a great day. [15:57].2]
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