Dollar inflation. Growth rates and risks

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:41

This article will focus on the US dollar and inflation, which is also subject to this popular world currency. The rate of its growth, the risks associated with savings in this monetary unit will be considered. In addition, mechanisms have been proposed that allow you to protect your own investments from dollar inflation.

Depreciation of American money

Many people have an erroneous opinion, which is that if you convert the national currency into US dollars, this will reliably and guaranteed to protect against inflation. But this is far from true. The US currency is also subject to this phenomenon. Of course, the inflation rate of the dollar is much lower than that of other monetary units. Especially when compared with the currencies of developing countries, which include Russia (and Ukraine).

Over the past ten years, dollar inflation has been about 15%. In addition, there is a risk that inflationary processes against the US currency may accelerate. Below is an analysis of these probabilities.

The role of the US currency inworld

Inflation of the dollar also occurs for the same reasons as any other currency. The US Federal Reserve has been criticized for many years for creating a "soap bubble" that led to a fall in the real value of the US currency. America is issuing huge amounts of dollars using a low discount rate and a bank multiplier. But at the same time, this state of affairs does not lead to hyperinflation in the United States, which causes bewilderment and questions from ordinary people.

And the chest opens easily. The American currency is the main reserve currency in many countries of the world. The dollar is the hegemon that is used in most international financial transactions and therefore enjoys certain advantages.

Dollar Reliability Factors

First of all, it should be noted the huge trust that the US currency has around the world. The dollar in the US and outside of America are two different monetary units. In the domestic market, this currency is worth much less than abroad. The same goods and services in the US and outside the country have different prices. How much is a dollar worth? In America, of course, less than in the rest of the world.

Secondly, it is necessary to emphasize the great demand for the US currency around the world. The population of different countries uses the dollar as a payment instrument for goods and services and as a way to accumulate money. In this case, we can draw an analogy with Bitcoin, which has no material value at all,not supported by gold and foreign exchange reserves, trade balance, GDP and other classic "muscles" of currencies. But people trust him, and there is a high demand for him. And this, in turn, is the basis of the hardness of the monetary unit. The situation is similar with the US dollar.

In addition, the third aspect should be highlighted. This is the export of inflation from America to other countries of the world. The fact is that the United States, when buying goods and services abroad, pays with the dollar. So, for example, oil is purchased in Arab countries, and electronics and components are purchased in China. Thus, inflation is stimulated in these states, and in the US, the dollar remains in its positions, still characterized by reliability and stability.

But despite these factors, as noted above, the US currency is also subject to depreciation in the region of 1.5% per year. This is especially noticeable over long distances. What is the inflation rate of the dollar over the years? For example, one thousand dollars in 1950 is equivalent to 50 thousand US dollars today.

Methods to combat the inflation of the American currency

Is there a mechanism to protect your savings from US dollar inflation? Undoubtedly. There are several tactical maneuvers that can be used. First, it is the diversification of savings by redistributing savings between other currencies. You can divide your funds into several equal parts and use them to buy euros, Chinese yuan and Japanese yen. This will redistribute the risks of economic and financial crises betweendifferent parts of the world. In this case: Europe, Asia and America.

Besides, it is possible to prevent a possible acceleration of dollar inflation by investing savings in real assets. For example, real estate. This will protect savings by investing in a real good, the price of which will not collapse, regardless of how much the US dollar costs. After the normalization of the economic situation and the rise of the new world currency to Olympus, the investor will always be able to sell his asset for the same equivalent that was spent on its acquisition.

Bank deposit

You can protect your dollar savings from inflation by investing them in a bank deposit. Often, interest rates offered by financial institutions only protect assets from depreciation. But it's better than just keeping money under your pillow. In this case, as mentioned above, the loss of the real value of the dollar will be about 1.5% per year. True, even this method of fighting inflation comes with its own risks. For example, bank failure and, accordingly, possible problems with getting your deposit back.