JP Morgan: US Dollar Could Lose its Reserve Currency Status, Need for Investment Portfolio Diversification


The US dollar will struggle to remain the global reserve currency, in the coming decades, having already completed its tenure as a GRC.

“The US dollar has been the world’s dominant reserve currency for almost a century,”

wrote, bank’s strategist Craig Cohen in a report earlier this month.

“We believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.”

The US dollar isn't the first one.

Many currencies have come to their demise throughout history as can be seen in the chart, first created by JPMorgan‘s Michael Cembalest eight years ago. Reserve currencies just don’t last forever and in a not too distant future, the US dollar will lose its status as the world’s most important currency as well.

“Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought,”

Cembalest reiterated late MIT economist Rudiger Dornbuschbacks’ remarks, in January 2020.

So, it might not be a coincidence that in the light of growing mention of MMT, from the US Fed, ECB, Bank of Japan, Bank of Korea to Reserve Bank of India, and central banks of New Zealand, Brazil, Australia, Russia, Indonesia, Turkey, and Africa, all are getting ready for rate cuts, among others destructive monetary policies being proposed, the topic of reserve currency’s longevity is back again in the limelight.

JP Morgan itself asked in this month's investment strategy note, whether the “dollar's “exorbitant privilege” is coming to an end?”

Source: Exante

For being the world’s dominant reserve currency for almost a century, now its time is coming to an end. Hence, investors need to diversify dollar exposure by getting rid of US Dollar “overweight” and placing a higher weight on other currencies in developed markets and Asia.

“In the coming decades we think the world economy will transition from the US and US dollar dominance toward a system where Asia wields greater power,”

JP Morgan concluded.

A more stable source of value like gold is also another asset to diversify your investment portfolio.

We have already seen how the demand for the precious yellow metal from Russia and China continues to rise to new levels.

Recently, Ray Dalio, Bridgewater founder called for a good time for investors to ask

“what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system.”

Could it be possible Bitcoin will be that next reserve currency?

According to cryptocurrency industry experts, it’s a big yes.

Morgan Creek’s Anthony Pomplaino has been vocal about his very bullish views on the leading cryptocurrency as a reserve currency.

“Non-zero chance Bitcoin will become GRC,”

said hedge fund manager and founder of Morgan Creek Mark Yusko as he points out how for the past 600 years GRC has changed many times.

As crypto enthusiast, Rhythm Trader notes, in comparison to GDP: $80T, Gold: $7.5T, Funds: $18T, Stocks: $73T, Money: $80T, Wealth: $317T, Real Estate: $228T, Bitcoin’s $0.2T is just a blip on the radar, for now.

“Were so early it's laughable,”

rightly adds Rhythm Trader.

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