As the world faces unprecedented economic uncertainty, the potential for de-dollarization looms large. But what would this mean for the global economy?
According to a fund manager and founder of Santiago Capital, Brent Johnson, the transition from a dollar-based economy to an alternative currency would be far from smooth.
In fact, he believes that the chaos resulting from such a shift would likely lead to a rise in the dollar's value rather than its decline.
Johnson explains that even if the US were to disappear off the face of the earth, the rest of the world still holds an enormous amount of dollar debt owed to one another.
If the circulation of dollars were to decrease, but demand for the credit they represent remained, the result would be a push in price upwards.
Moreover, the process of de-dollarization is inherently chaotic. Markets thrive on certainty, yet de-dollarization would create a great deal of uncertainty.
Johnson predicts that confusion over which currency would replace the dollar, as well as who oversees it and how it is enforced and audited, would lead to economic and social volatility.
The uncertainty would cause the populace to push back against their governments, leading to social unrest, and governments would need to take measures to hide their problems, likely by blaming foreign entities. This blaming, in turn, could lead to military conflict and increased volatility.
In conclusion, Johnson argues that the transition would be highly chaotic regardless of whether de-dollarization is a myth, tried and failed, or succeeds.
The resulting chaos would ultimately cause the value of the dollar to increase rather than decrease.
While it remains to be seen whether de-dollarization will come to fruition, it's clear that the impact would be far-reaching and highly disruptive.