Goldman Sachs warns against possibility of US dollar losing world reserve currency status. American investment bank and financial services firm Goldman Sachs cautioned Tuesday that the US dollar is in danger of losing its position as the reserve currency of the world.
The strategists at Goldman Sachs wrote “Real concerns around the longevity of the U.S. dollar as a reserve currency have started to emerge.”
They explained that the U.S. dollar faces several risks. Citing that the debt level in the U.S. has now exceeded 80% of the country’s gross domestic product, they anticipate that the government and central bank may allow inflation to accelerate.
“The resulting expanded balance sheets and vast money creation spurs debasement fears,” they described, adding that this creates “a greater likelihood that at some time in the future, after economic activity has normalized, there will be incentives for central banks and governments to allow inflation to drift higher to reduce the accumulated debt burden.”
The dollar is also influenced by other factors such as rising political instability and increasing fears about another surge in coronavirus infections.
The gold price hit Monday’s all-time high, climbing to $1,931 an ounce, sparking a widespread expectation that $2,000 an ounce could soon be reached.
Gold’s record-breaking surge also had Goldman Sachs updated its outlook to $2,300 an ounce in the next 12 months after the firm had previously rejected its own $2,000 estimate.
The Goldman strategists explained “Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows.”
Bitcoin has also been named a safe haven asset for the current environment. Galaxy Digital CEO Mike Novogratz, for example, believes that with central banks mass printing money, it is “an amazing environment for both being long gold and long bitcoin.”
[image: Dmitry Demidko]