The U.S. dollar (USD) has historically experienced fluctuations due to a variety of economic, political, and social factors. Concerns about the dollar often arise from changes in its purchasing power, effects on international trade, and reactions to domestic and global economic conditions. Below are several charts showing that this is not the first time the $USD has lost purchasing power. Over the decades, the USD has experienced significant devaluation. Between 1987 and 1995, and again between 2003 and 2015, there were notable periods where the dollar fell below the $100 mark when valued against gold. Using gold as a benchmark for measuring dollar value is common because it is seen as a stable store of value. Gold has maintained its value over thousands of years, making it a reliable asset for comparison against fiat currencies like the USD. The adoption of Basel III banking regulations, which classify gold as Tier 1 capital, further solidifies gold's role as a trustworthy asset in times of economic uncertainty.
This is not a recommendation to buy gold, it is just for comparative purposes.
Notice below that all currencies suffer from purchasing power loss. Governments and central banks around the world often respond to economic conditions (unemployment rates, economic growth, global events, and consumer confidence/inflation expectations) by adjusting monetary policy. This can involve increasing the money supply to stimulate the economy, or increasing debt to finance expenditures.
In 2023 and 2024 there was much talk about a BRICS currency that would displace the U.S. dollar in trade among its members and might prove to be an acceptable reserve currency to rival the dollar. In fact, no such alternative currency is in the works. It might happen in the future but it would take many years to properly to design and implement. However, the BRICS nations are building a new payments system using proprietary cables, secure servers and highly encrypted message traffic protocols along with a blockchain-type ledger. Payments are in local currencies in the new payment channels that cannot be disrupted by western powers. This would allow trading between countries without using the US Dollar.
Bitcoin: In my opinion bitcoin is a currency (should be traded as a currency) and not a tangible investment or commodity. Generally, a commodity is typically understood as a basic good used in commerce that is interchangeable with other goods of the same type. Commodities can include raw materials such as metals, grains, and energy sources, which are extracted or harvested, but they can also refer to finished products that have been processed.
In summary, historical knowledge and awareness of macroeconomic trends are essential tools for investors navigating today’s complex financial landscape. Balancing the allure of new, volatile assets like Bitcoin with traditional assets like gold—and even the U.S. dollar—requires a careful assessment of one’s financial goals and the inherent risks involved.
The chart below shows $USD volatility in a short time frame starting in 2018.
$GOLD:$USD Ratio - The $GOLD:$USD ratio is a financial metric that compares the price of gold to the U.S. dollar, indicating how gold performs relative to the dollar over different periods. Between 2006 to 2011, and 2024 to present in the chart below gold performed better than the US dollar.
Global trade has changed for the foreseeable future, this has been unfolding for a while. The changes in how the United States engages with its trading partners reflect a significant shift in trade policy. The idea of volatility as a norm in global trade is increasingly relevant and contributes to a more unpredictable trading environment.
The present-day investment landscape can often be influenced by sensational headlines and short-term trends, which may not always reflect underlying economic principles or long-term growth potential. Whether deciding between a luxury item or an investment in experiences (like travel), aligning spending decisions with long-term financial goals is crucial. Consider how each choice impacts your overall financial health and future aspirations. Diversifying portfolios to include international assets can reduce risk and enhance growth potential. Different regions and currencies can behave differently under varying economic conditions, providing a buffer against local downturns. Identifying your time horizon for cash flow and investments is essential. It helps in determining the appropriate asset allocation. Short-term needs may necessitate more stable investments, whereas long-term growth may allow for more aggressive strategies.
Word of the Week: Volatility (Sedway Financial Blog dated April 7, 2025)
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Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results. The digital currencies are speculative, highly volatile, and not backed by any central bank or government. Cryptocurrencies are likely to evolve over time, including potential regulation. There are unique risks associated with cryptocurrencies relating to the technology that is central to its existence. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future
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