A group of Southeast Asian countries in the region, such as Singapore, Malaysia, Indonesia, Cambodia, and Thailand, are currently contemplating the process of de-dollarization in order to diminish their dependence on the US dollar within their economies.
Nations worldwide are seeking alternatives to the US dollar, with examples being China and Russia trading in their own currencies, and countries like India, Kenya and Malaysia advocating for de-dollarization or signing agreements with other nations to trade in local currencies or alternative benchmarks.
Brazil and China have abandoned the buck in their trade. And BRICS nations aren't the only ones making this switch. Indonesia and South Korea dumped the dollar to trade between themselves in local currencies. Even France, a US ally, has recently traded with China directly in yuan.
Some say it will be the euro; others, perhaps the Japanese yen or China's renminbi. And some call for a new world reserve currency, possibly based on the IMF's Special Drawing Right or SDR, a reserve asset. None of these candidates, however, is without flaws.
Precious Metals: Gold and silver other metals have historically served as stores of value during economic turmoil. They are tangible assets with limited supply and industrial uses. Cryptocurrencies: Some view certain cryptocurrencies, like Bitcoin, as a potential alternative to traditional currencies.
What Would Happen If the U.S. Dollar Collapses? If the U.S. dollar collapses: The cost of imports will become more expensive. The government wouldn't be able to borrow at current rates, resulting in a deficit that would need to be paid by increasing taxes or printing money.
1. Kuwaiti dinar. The Kuwaiti dinar (KWD) is the world's strongest currency, and this is for a number of reasons. For starters, Kuwait has one of the largest oil reserves in the world.
Experts are skeptical that BRICS would succeed in creating its own currency for global trade, pointing to infighting between the member nations and major differences in the way the countries run their economies and financial institutions.
In isolation, if the world stops using the dollar in international transactions, this action really would not impact the US economy all that much. All it would mean is that foreign countries would no longer trade dollars between each other; but they also won't just sit on dollars.
The factors that have supported a strong dollar for years remain largely intact. The U.S. dollar has declined by about 4% since July against a basket of currencies including the euro, British pound and Canadian dollar and is now hovering near the low end of a broad trading range that has prevailed since late 2022.
In 2024, the U.S. dollar has experienced notable depreciation against many major currencies due to anticipation of the Federal Reserve's first rate cut since the onset of the COVID-19 pandemic (rates were cut by 0.5% in September 2024).
On July 14, 1969, the Department of the Treasury and the Federal Reserve System announced that currency notes in denominations of $500, $1,000, $5,000, and $10,000 would be discontinued immediately due to lack of use. Although they were issued until 1969, they were last printed in 1945.
A report by JP Morgan3 suggests that de-dollarization could affect the US economy through stock market volatility [Brunnermeier and Pedersen (2008)], higher borrowing costs [Maggiori et al. (2019)], reduced access to capital [Maggiori et al. (2020)], and a debt crisis [Lilley et al. (2022)].
Iranian Rial (IRR)
Currently, the Iranian Rial is considered the world's least valuable currency. This is the result of factors like political unrest in the country. The Iran-Iraq war and the nuclear program also played a huge part.
As of Nov. 19, 2024, the world's strongest currencies against the U.S. dollar are the Kuwaiti dinar, Bahraini dinar, Omani rial, Jordanian dinar, and British pound.
Investors may also want to consider increasing exposure to real assets, such as commodities, gold, energy- and power-related infrastructure, and real estate investment trusts (REITs). Also look to international stocks, especially in Japan, India, Mexico and Brazil.
Dollar strength is expected to stabilize or persist into 2025 for several reasons. Economic growth differentials: The U.S. economy is projected to grow by 2.7% in 2024, outpacing the 1.7% growth forecast for all developed markets.
Your mortgage payments could change drastically because of a collapsing dollar, especially if you have an adjustable rate. Those interest rates would follow the trend of the economy itself, so if the Fed raises interest rates, mortgage rates will also climb. This would lead to volatility in your mortgage payments.
The US or Canada. Even with the dollar collapsed and a global recession, North America has a self-contained economy and natural resources to export, so would face the least harm.
A weaker dollar also makes U.S. goods and services (and assets) relatively less expensive for foreign buyers, which benefits U.S. producers that export goods.
A U.S. economic collapse would create global panic. Demand for the dollar and U.S. Treasurys would plummet. Interest rates would skyrocket. Investors would rush to other currencies, such as the yuan, euro, or even gold.