The Dollar’s Power Is Changing. Here’s What It Means for U.S. Consumers Like You

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

The U.S. dollar’s percentage of the world’s foreign reserves has slowly declined the past 20 years. Read on to learn why it matters. 

The U.S. dollar has been a dominant currency around the world for 80 years. It’s long been the go-to for international trade and a symbol of American power. In 2000, the U.S. dollar represented about 70% of the global reserves.

While the U.S. dollar is still the dominant currency, its hold on the global economy has been slipping, declining to 60% today. When the U.S. dollar isn’t worth as much compared to other currencies, countries tend to hold less of it in their reserves. This is because the value of their reserves in other currencies goes up. The opposite happens when the U.S. dollar is strong.

If the dollar’s power continues to decline, this shift can have some significant implications for U.S. consumers. Here is what the changing role of the dollar means for you.

The cost of imports may change

If the dollar’s power continues to decrease, the cost of imports may go up. This is because when the currency is weaker, it takes more dollars to buy the same amount of goods from other countries. This could lead to inflation, making goods more expensive for U.S. consumers. On the other hand, if the dollar becomes stronger, it could lead to deflation, making imports cheaper. Either way, it’s important to keep an eye on the value of the dollar when buying goods from overseas.

U.S. exports may become more competitive

While a weaker dollar can have negative effects on U.S. imports, it can also make U.S. exports more competitive. This is because it will take fewer foreign currencies to buy U.S. goods, making them more appealing to foreign buyers. This could lead to a boost in U.S. exports, which is good news for American businesses and the economy as a whole.

Travel may become more expensive

As the dollar’s power declines, traveling abroad may become more expensive. This is because it will take more dollars to buy the same amount of foreign currency, such as euros or pounds. If you’re planning on traveling overseas, it’s important to factor in the exchange rate when budgeting for your trip. You may want to consider traveling to countries where the dollar is stronger, using a travel rewards credit card, or holding off on travel plans until the exchange rate is more favorable.

Investments may shift

As other currencies gain more power, investments may shift away from the U.S. This could impact the stock market, real estate, and other investments. If you have investments in the U.S., keep an eye on how the dollar is doing compared to other currencies. It may be worth considering diversifying your investments to buy stocks in foreign markets as well. It is important to do your research before investing overseas.

International trade could become more complex

As other currencies gain more power, international trade could become more complex. Instead of using the dollar as the default currency for trade, other options such as the euro or yuan could become more common. This could require U.S. businesses to adjust their operations, including the currency they use for international transactions. It’s important to stay informed about changes in the global economy to ensure your business stays competitive.

What you should do

Even though the dollar’s dominance as the world’s main reserve currency is decreasing, many economists believe it will continue to hold its position because no other currency is seen as a better option.

You can’t control the global economy, but to keep your personal finances stable, focus on what you can control. That means continuing to invest in yourself and building a steady income, saving 15% to 20% of what you make, and investing regularly. Diversify your investments and look at multiple passive income streams. By doing this, you’ll be in a good position, even if the U.S. dollar loses its reserve status in the future.

RELATED: Best Savings Accounts

The dollar’s declining power is a significant shift in the global economy that could have a range of impacts on U.S. consumers. From the cost of imports to travel expenses to investment decisions, it’s important to keep an eye on how the dollar is doing compared to other currencies. While there could be some negative impacts from this change, there could also be opportunities for U.S. exports to become more competitive. The key is to stay informed, focus on what you can control, and be prepared for changes in the global economy.

These savings accounts are FDIC insured and could earn you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More