Sadly, after the removal of Gold Standard in early ’70s by Nixon administration to prevent a run on the gold due to depreciating $, $ has become essentially “fiat” money. i.e. it is worth whatever Federal Reserve wants it to be. Normally, out of fear of inflation, Fed has an interest in being careful in guarding the value of $ and hence control money creation. But if there is a greater catastrophe (than runaway inflation), that restraint will fall by the wayside. This has happened all over the world in history. e.g. our own Continental Dollar
Sadly, after the removal of Gold Standard in early ’70s by Nixon administration to prevent a run on the gold due to depreciating $, $ has become essentially “fiat” money. i.e. it is worth whatever Federal Reserve wants it to be. Normally, out of fear of inflation, Fed has an interest in being careful in guarding the value of $ and hence control money creation. But if there is a greater catastrophe (than runaway inflation), that restraint will fall by the wayside. This has happened all over the world in history. e.g. our own Continental Dollar
Because investors with large amount of money to invest would be wise to diversify their holdings to reduce their currency risk exposure. This is definitely needed by Central Banks to hold their balance of trade surplus. For example, China, which earns shiploads of greenbacks due to their exports to US would be stupid to keep all the $ that we (Fed) can depreciate and render them worth less (as a way of settling our National Debt fox example!). By diversifying their reserves into Yen, Euro etc, they will reduce the risk.
Because investors with large amount of money to invest would be wise to diversify their holdings to reduce their currency risk exposure. This is definitely needed by Central Banks to hold their balance of trade surplus. For example, China, which earns shiploads of greenbacks due to their exports to US would be stupid to keep all the $ that we (Fed) can depreciate and render them worth less (as a way of settling our National Debt fox example!). By diversifying their reserves into Yen, Euro etc, they will reduce the risk.
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