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A Quick Recap of the Rise and Fall of Major Global Currencies


A review of the history books will tell you about the rise and fall of kingdoms, empires, and civilizations. Celebrated economist and social scientist, Mancur Olson has written extensively on why economies rise and fall in his book; The Rise and Decline of Nations. In the more recent history of the last 100 years, a number of economies have had their glory days and they are now a shadow of their former selves.

Nothing lasts forever and the only constant force that you can count on in the geopolitical landscape is change. That is why kingdoms rise, thrive, and decline. Change is the reason empires rise and fall. Change is the reason governments are loved and hated. Change is the reason economies rise, thrive, stutter, and eventually die. This post seeks to provide a quick recap of the rise and fall of some major global currencies. The article also attempts to provide the discerning investor with information about the next emerging global currency.

Meet the Almighty dollar

The almighty dollar, U.S. Dollar (USD) also known as the Greenback is in no doubt the major currency of the world right now. The USD is regarded as the unofficial world reserve currency by virtue of the fact that it is the currency of the world’s largest economy. In fact, the dollarization of other economies and the use of the U.S. dollar in triangular transactions also attest to the esteemed position of the greenback in the global economic landscape.

Nonetheless, the fact remains that the U.S. dollar is weak and it has already peaked out in its rise as the world’s reserve currency. The importance of the USD in the global economic landscape has started to plateau and it’s only a matter of time before the decline sets in. For one, inflation is eroding the value of the U.S. dollar and savers are finding out that their cash hoards are not keeping up with inflationary trends.

Who could have thought that the Euro won’t dominate the world

When the European Union (EU) was formed by a coalition of countries in Europe in 1993, many people believed that the EU was on track to become the next world superpower. The fact that EU member nations agreed of free trade, unhindered travel among member nations, and a common currency also gave the global investors high hopes for the Euro.

However, 14 years later (the Euro became a legal tender in 2002) the Euro is still yet to live up to expectations as a global reserve currency. In fact, Forex traders believe that the Euro is a slower currency in relation to other currencies such as the Australian Dollar. The fact that the EU is made of a coalition of strong and weak economies (Greece and Cyprus among others) also makes it hard for the Euro to live up to expectations.

The Yuan can’t seem to fly high enough


The Chinese Yuan is another major currency that has the potential to become a global currency but it hasn’t lived up to expectations.  On October 1 2016, the Chinese Yuan was accepted into IMF’s Special Drawing Right Basket as one of the five global reserve currencies. The Yuan now has the third-largest weighting at 10.92% behind the Euro (30.93%) and the U.S. Dollar (41.73%).

Nonetheless, the Chinese economy is no longer as healthy as it used to be and the future of the Yuan as a world reserve currency is uncertain.  More so, not many people use the Yuan as means of exchange in the global markets. In fact, many international buyers who want to do buy stuff from China often change their home currencies to the U.S. instead of using the Yuan directly to facilitate the trade. The IMF notes that the total Chinese exports and imports is valued at $4.0T but the Yuan is only used 1.8% of the time.

Bitcoin is the new gold

Gold used to the unofficial world reserve currency because of the factors that make it a better alternative to fiat currencies. Gold is a store of wealth and its value tends to increase in times of geopolitical and economic uncertainty. Hence, many investors often seek refuge and stability in the tallow metal.

However, gold is gradually losing its shine as governments and monetary policymakers make tacit moves to undermine the appeal of the bullion. In the last one year, the price of gold is up 12.97% but its price is down 20.99% in the last five years.

However, investors don’t need to be stuck with a feeling of helplessness in finding trustworthy world reserve currencies. Bitcoin is set to become the new gold because of its decentralized nature and the fact that no government or financial institution can control or influence the Bitcoin network.

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