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In June, the Financial Times reported that a survey of central bankers revealed that they believed the dollar would lose its reserve status over the next 10 years.

And they're probably right.

Over the last year, headlines from around the world have been showing this dramatic trend to be true. Many countries are trying to move around the dollar when negotiating their trade deals.

The implications of this are enough to make anyone sit up and take notice. Not only does this show economic animosity to the US and the dollar, but it also greatly weakens the US currency, having powerful long-term impacts to the US economy, the US government, and the lifestyles of millions of people over the coming years.

Why They Want Free

The reasons the businessmen and the governments of other nations often want to be free from the dollar should be fairly obvious -- they gain a lot from the move, taking up monetary and economic influence wherever the dollar leaves off.

A couple weeks ago, US ally David Cameron even pointed out something along these lines while talking about the economic issues of the UK:

We're not a reserve currency so we have to take a different path.

This is especially true for oil producers and China, who both are growing closer over the last few years due to shared mutual interests.

As Financial Times reported (link above):

Holders of large reserves, most notably China, have been diversifying away from the dollar. In the first four months of this year, three quarters of the $200bn expansion in China's foreign exchange reserves was invested in non-US dollar assets, Standard Chartered estimates.

Quite frankly, you can't really blame China. If they're able to have their currency take the reserve status for the world -- and I'm not quite predicting they will -- then this will give them huge monetary flexibility that the US currently has, allowing them to essentially inflation tax the rest of the world at some point because of the sheer amount of their currency being both in the system as well as in high demand.

The context of this is important. Just as the US will be losing monetary power, China will be gaining it, at least if we continue on the current projection.

Of course, the future of reserve currencies probably won't just be "China" -- it could be gold, a basket of currencies, or some new system entirely. Speaking of gold prices...

Iran and Gold

Iran isn't exactly the United States' biggest buddy right now, and for good reason. They believe they have a right to continue developing nuclear projects, and the US wants them to keep a tight lid on it -- at least to an extent.

Some leaders from both countries talk of war and conflict, and the US is already trying to engage in trade sanctions against them -- something many people, myself included, consider a type of act of war.

The response by Iran isn't a ban on dollar trades, of course, but instead the acceptance of a new -- or should I say "old" -- type of money... gold.

According to Bloomberg, Iran is now trading oil for gold:

Iran will accept payments from trading partners in gold in addition to dollars and other currencies, central bank Governor Mahmoud Bahmani said, according to the official Islamic Republic News Agency.

If gold is continually used as a reserve currency, its price could shoot up if priced in dollars -- especially if this happens relatively quickly, and people are trying to trade their dollars for gold.

What Happens If?

Like David Cameron said above, not having a reserve status means you have far fewer options. And in the US, having that dollar status means we're able to manipulate the value of the dollar for economic reasons -- far more so than without a reserve status.

If the US loses its reserve status dramatically, the impacts could be shocking and severe. Stagflation at the least, a strong recession and high inflation at the worst.

But perhaps more importantly wouldn't just be the short-term economic implications. The US would be less able to finance the growing world empire, less able to print their way out of short-term recessions, and far less able to ignore its soaring debt levels. Austerity and/or massive cutting would likely have to occur.

Gold would likely increase, as would many other currencies. Whichever money or currency "won" to be the new reserve currency, that nation -- or nations would likely see their influence increase.

This is one of the most important trends going on in the world economy, and it will pay to keep up with it.

What do you think is going to happen to the US dollar? Do you believe it will be bad for the US economy if nations start trading more in other currencies or commodities?

Source: The Age Of The Dollar Is About To End