Dollar Reserve Status

Brian Hicks

Written By Brian Hicks

Posted March 25, 2009

Treasury Secretary Tim Geithner, perpetually wearing the expression of a stunned deer, fell on his face today. Fortunately for all of us who have to use dollars at any point in the future, Geithner was saved by an astute audience member. The Secretary awkwardly confessed "openness" to a new international reserve system.The dollar’s reserve currency status is under fire again.

The prospect of approving International Monetary Fund special drawing rights (SDR) drove the dollar down instantly in forex trading (1.3% against the euro, a rather large movement in thin-spread foreign currency exchange markets), until a last-minute prompt for the Treasury Secretary to declare his full backing for the status quo. You can read the whole story here: Geithner Remarks on IMF Roil Foreign Exchange Market.

China, Russia, and other countries are more vocally questioning the dogma of the dollar as international reserve currency, with China most recently proposing the SDR option.

For energy market observers, the implications of a switch away from the dollar as dominant reserve currency are enormous. Post-WWII United States industrial power and domestic development were based on liquidity and protection provided by the U.S. in exchange for oil access.

The cycle put America at the pivot point of the world economy, and even the euro’s rapid strengthening has only brought it to a 25-30% share of world currency reserves.

But Kuwait started a movement away from the Gulf Cooperation Council’s peg to the dollar in 2007, and others could follow. After all, Kuwaiti officials say the move has been beneficial in both export advantage and tempering inflation, which has run into double digits on a monthly basis.

If the GCC drifts from the dollar, can OPEC be far behind?

If we’ve learned one thing from all the sub-prime, asset-backed, bailed-out madness of the past couple years, it’s that assumptions should be challenged. The dollar’s reserve status seems sacrosanct but that’s exactly why it merits further examination. Your dollar-based energy investments deserve a review, too.

My tip: Consider Norway’s Statoil Hydro (NYSE:STO), because it does business outside both the euro and dollar areas. In fact, neutral Norway isn’t even in the European Union. STO should be on fairly even footing whatever the euro and dollar do, or even if energy stock investments have to recalibrate to a new currency concoction altogether.

One thing we know is that gold is seen as a material that will always have value. You can drop on your foot, make things out of it, and trade it for things you need. While dollar-denominated assets, including oil, are subject to the dollar’s ups and downs, more and more investors are taking advantage of gold’s "doubling effect." To learn more, click here:

Sam Hopkins

Angel Publishing Investor Club Discord - Chat Now

Brian Hicks Premium


Hydrogen Fuel Cells: The Downfall of Tesla?

Lithium has been the front-runner in the battery technology market for years, but that is all coming to an end. Elon Musk is against them, but Jeff Bezos is investing heavily in them. Hydrogen Fuel Cells will turn the battery market upside down and we've discovered a tiny company that is going to make it happen...

Sign up to receive your free report. After signing up, you'll begin receiving the Energy and Capital e-letter daily.