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Goldman Warns Dollar’s Role as World Reserve Currency Is at Risk

ForexJul 28, 2020 08:18AM ET
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© Reuters. Goldman Warns Dollar’s Role as World Reserve Currency Is at Risk

(Bloomberg) -- The U.S. dollar’s reign as the world’s reserve currency is coming under threat, as evinced by the recent surge in gold prices, according to Goldman Sachs Group Inc (NYSE:GS).

The greenback faces several risks, including that the U.S. Federal Reserve may shift toward an “inflationary bias,” a rise in political uncertainty and growing concerns surrounding another spike in coronavirus infections in the country, according to Goldman strategists. They added that the debt buildup as a result of the pandemic may lead to debasement fears.

“Real concerns around the longevity of the U.S. dollar as a reserve currency have started to emerge,” wrote Goldman strategists including Daniel Sharp (OTC:SHCAY). “Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows.”

Gold’s record-breaking rally highlights growing concern over the world economy. The bank raised its 12-month forecast for gold to $2300 an ounce from $2000 an ounce previously. That compares with a value of around $1930 currently.

Meanwhile, the Bloomberg Dollar Spot Index is on course for its worst July in a decade. The drop comes amid renewed calls for the dollar’s demise following a game-changing rescue package from the European Union deal, which spurred the euro and will lead to jointly-issued debt.

Ballooning Debt Pile

For Goldman, the growing level of debt in the U.S. -- which now exceeds 80% of the nation’s gross domestic product -- and elsewhere, boosts the risk that central banks and governments may allow inflation to accelerate.

“The resulting expanded balance sheets and vast money creation spurs debasement fears,” Goldman strategists said. This creates “a greater likelihood that at some time in the future, after economic activity has normalized, there will be incentives for central banks and governments to allow inflation to drift higher to reduce the accumulated debt burden,” they said.

The Fed is set to deliver its latest decision Wednesday. The bank sees U.S. real interest rates continuing to drift lower, boosting gold further.

©2020 Bloomberg L.P.

 

Goldman Warns Dollar’s Role as World Reserve Currency Is at Risk
 

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Comments (7)
Bulent Ok
Bulent Ok Jul 29, 2020 7:08AM ET
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Toilet paper should be the reserve nomination.
Bulent Ok
Bulent Ok Jul 29, 2020 7:07AM ET
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Toilet paper is more valuable than US dollar as we speak.... 🤣
Bulent Ok
Bulent Ok Jul 29, 2020 7:05AM ET
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Gbp is ***the dollar GBP on steroids... Madness all I made from my US stocks were wiped out by GBP rally...
Alan Rice
Alan Rice Jul 28, 2020 2:53PM ET
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Goldman: That used to be. But NOW the new currency IS clean air, water, and environment.
Kisakye Ishaaq
Kisakye Ishaaq Jul 28, 2020 10:51AM ET
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I only see the $ debasing against the Euro but other pairs look the same when compared to last year
John Pat
John Pat Jul 28, 2020 9:21AM ET
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That's a pretty bold statement, but the way in which the FED has been madly printing dollars and devaluing the US dollar, its becoming more and more probably that a new reserve currency is needed. One backed by gold not a basket of other worthless currencies.
Ali Bransford
Ali Bransford Jul 28, 2020 8:54AM ET
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yup.
Edward Chong
Edward Chong Jul 28, 2020 8:54AM ET
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Goldman can change views in 24 hours. that is why they are goldsman.
 
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