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Forbes: The IMF Has a Message for Investors

February 09, 2021
Image for Forbes: The IMF Has a Message for Investors

Article by Jeff Opdyke in Forbes

How huge is “huge?”

Is it just verbal hyperbole to colorfully underscore a point? Or do you take it at face value and prepare for a monumental moment of change?

Those are the questions one is left with in the wake of recent comments from International Monetary Fund managing director Kristalina Georgieva. In mid-October, she announced that the world must “seize this new Bretton Woods moment,” a reference to the famous 1944 agreement in New Hampshire that established the U.S. dollar as the world reserve currency. 

Now, the global investor universe rightly wonders if Ms. Georgieva’s comments allude to what former London hedge fund manager Raoul Pal recently labeled in a tweet a “huge change coming.”

There’s certainly reason to believe Mr. Pal is on the right scent.

Though Bretton Woods officially established the dollar as the world’s reserve currency, for all practical purposes the dollar has held that position since about 1920, in the aftermath of World War I. For the last century, the dollar has reigned supreme. 

Yet every world reserve currency that has ever existed has ultimately lost its perch atop the mountain. Going back to the Portuguese real of the mid-1400s, the world has seen the rise of six reserve currencies, and the fall of five – so far. Each held its aerie for between 80 and 110 years. 

And the dollar is right at the 100-year mark! 

This centennial moment arrives amid a pandemic that has seen global governmental debts explode to worryingly large levels. U.S. national debt now exceeds 137% of GDP, and further debt-fueled spending is assured soon. That has global investors rightly concerned about DC’s capacity to manage its future obligations.

The centennial also arises as key countries – namely China and Russia, though others populate that list to – grow weary of the financial advantages America accrues from having its currency rule the world. Movements are afoot to bypass the buck and, ultimately, to relieve it of its status. 

There are a couple ways to protect yourself. You could short the dollar, but that’s a risky venture if only because the timing of a currency regime change is unknowable. You could own leveraged exposure to other currencies, particularly the Swiss franc, the Japanese yen and the Singapore dollar (a proxy for the Chinese yuan). Again, though, there’s that matter of timing.

A better strategy: Own gold.

Whatever comes of a new Bretton Woods moment, gold will feel the knock-on effects. Maybe that comes by way of gold’s inclusion in whatever currency reset occurs. Maybe it’s just a function of investor panic that the dollar’s reserve-currency status has, like every other reserve currency, faded into history. 

So, assuming “a new Bretton Woods moment” does signal a “huge change coming,” what makes more sense for an investor: Buying into the wisdom of economists and financial prognosticators who’ve spent a chronologically short amount of time on this planet analyzing currencies designed by bureaucrats? Or trusting the tides of history in which gold has played a crucial, financial role across 5,000 years – including its role repairing every currency catastrophe instigated by .....

To read this article in Forbes in its entirety, click here.

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