In a recent YouTube chat, Brent Johnson, CEO and portfolio manager at Santiago Capital, shed light on the ongoing debate around the potential demise of the US dollar as the world’s reserve currency. He argued that while de-dollarization is a growing trend, it will be a slow and complex process, and the US dollar will remain resilient in the meantime.
Johnson promoted the “dollar milkshake” theory, which posits that during a currency crisis, the US dollar will be the safest and most resilient option, attracting capital flows and potentially boosting asset prices. However, he acknowledged that this will not end well and could create painful conditions globally.
While headlines have been predicting the end of the US dollar’s reign, Johnson believes these claims are overreactions. He emphasized the importance of the Eurodollar market in maintaining demand for the US dollar and argued that a massive substitute would be needed to fully de-dollarize the world. The process is further complicated by the fact that the US has the power to provide swap lines and dollar funding, influencing other countries’ decisions to de-dollarize.
Johnson also discussed the idea of de-dollarization and the challenges faced by countries attempting to move away from the US dollar. He pointed out that alliances made out of necessity may not always remain steadfast, and a charm offensive by the US could make it harder for countries to be aligned against it. Furthermore, while the US has been a bully in some respects, it has also been a force for good and has played a crucial role in modernizing the world.
To prepare for the potential impact of de-dollarization and the fluctuating value of fiat currencies, Johnson advised against going all-in against the dollar. Instead, he recommended diversifying investment portfolios and scheduling a no-strings-attached portfolio review with a financial advisor to manage wealth in line with trends, risks, and opportunities.
While the world may be gradually weaning itself off the US dollar, the process will be slow and fraught with complexities. Investors should be mindful of these factors and avoid making hasty decisions based solely on sensational headlines. Instead, they should focus on maintaining a diversified portfolio and staying informed on the ever-changing global economic landscape.