How Strong Is Our Dollar? | The Real Inflation Rate | Truth About Inflation & Effects On Retirement


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I know we talk a lot about inflation and other economic distress. But that’s only because when it comes to financial planning, we like assuming the worst. So we can prepare for the worst. That gives us confidence. We know that even when the whole economy is collapsing, we will be fine.

It doesn’t mean everything else is gloom and doom.

Our own dollar is, in fact, more stable than other currencies. It is the #1 reserve currency of the world. It is not the only one. The euro, British pound sterling, Japanese yen, and Chinese yuan were all recognized by the International Monetary Fund or IMF as reserve currencies. However, the dollar is still recognized as number one.

Ever since the Bretton Woods Agreement collapsed, other major governments and central banks have relied on the U.S. dollar to back up the value of their own currencies. Through its reserve currency status, the dollar receives extra legitimacy in the eyes of domestic users, currency traders, and participants in international transactions.

The other reserve currencies are still important, though. For one, it gives countries the option to bypass the dollar when it comes to international trade. And they have exercised this a lot in the last several years.

We also still have the largest economy in the world. Even though growth has slowed significantly since 2001, the American economy still regularly outperforms that of Europe and Japan. Those two also have robust economic foundations.

This means the dollar is backed up by the productivity of American workers, or at least so long as American workers continue to use the dollar almost exclusively.

This is why many argue that the dollar collapsing isn’t really something we should worry about. I will not deal with that debate.

I will say this though. Even if we are on top, it doesn’t mean we should be complacent. It also doesn’t mean the dollar is not prone to devaluation. It has been devaluing since it was created.

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