The US dollar is facing a serious threat of losing its status as the world’s reserve currency, according to a new report by the International Monetary Fund (IMF). The report warns that the Fed’s unprecedented monetary stimulus in response to the COVID-19 pandemic could trigger a hyperinflation scenario that would erode the dollar’s value and boost the demand for alternative assets such as gold and cryptocurrencies.
US Dollar could lose its sheen
The report estimates that the US dollar could lose up to 80% of its purchasing power by 2025, resulting in a massive wealth transfer from dollar holders to holders of other currencies and assets. The report also predicts that the global market capitalization of cryptocurrencies could surge to $8 trillion by 2025, surpassing that of gold, as more investors seek to hedge against inflation and currency devaluation, reported Forbes.
“G7 central banks, including most importantly the Federal Reserve, will not be able to exit from unconventional monetary policy benignly and will ultimately remain committed to ongoing central bank balance-sheet expansion in one form or another,” Christopher Wood, global head of equity strategy at Jefferies, wrote in a note to clients seen by CNBC, calling bitcoin and gold “critical hedges” against the return of inflation.
Fed’s flip-flop on inflation
The report argues that the Fed’s flip-flop on inflation, from dismissing it as transitory to acknowledging it as persistent, has undermined its credibility and confidence in the dollar. The report also criticizes the Fed’s lack of transparency and accountability and its reluctance to taper its bond-buying program and raise interest rates.
The report concludes that the US dollar is at a tipping point and that a collapse could have devastating consequences for the global economy and financial stability. The report urges the Fed to act swiftly and decisively to restore its credibility and preserve the dollar’s dominance or risk losing it to rival currencies and assets such as Bitcoin, Ethereum, XRP, and other cryptocurrencies.