Power Up Wealth podcast – A Brief History of the US Dollar – Episode 48 transcript:
Sharla Jessop 0:00
History shows confidence in the US dollar has waxed and waned over the years. I’m Sharla Jessop. Today, James Derrick will share what history has revealed about the relevance of the dollar.
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James, thanks for joining me today.
James Derrick 0:47
It’s a pleasure.
Sharla Jessop 0:49
James is our Chief Investment Strategist at Smedley Financial Services. And he holds a CFA designation and an MBA. James, you have done a lot of research about the US dollar and have some fascinating information. Share with us what you found.
James Derrick 1:04
Well, we’re going to touch on some of the higher points over history. One of the amazing things about the US dollar is how dominant it is. The Apple iPhone, for example, has a little over 50% of market share, which is amazing. The US dollar when it comes to financial transactions in the world has about 90%. So it is unbelievably dominant. And it’s been the dominant currency for almost 100 years now.
Sharla Jessop 1:34
That’s incredible.
James Derrick 1:35
Yeah, it didn’t always start out that way. And there been a lot of skeptics, even in the last 100 years, there have been a lot of skeptics. But you know, one of the most famous is Andrew Jackson, who I remember learning in elementary school, learning that he did not like the paper money that the United States was issuing at the time. So this is around the year 1830. And he just hated it. And was not a believer in it. He didn’t. He also didn’t like the the national banks, which were owned by the federal government. And he abolished those. He also happens to be the only president who has ever paid off all the national debt, which is pretty amazing. And it sounds like a good thing on the surface. But I think that he sent the country into a massive recession, just as all these people had started up private banks. And so then 1000s and 1000s of banks were going bankrupt in this recession. So just crazy times.
Sharla Jessop 2:31
No spending, no government spending.
James Derrick 2:33
No government spending. I mean, the exact opposite of what we’re experiencing right now, where the government just continues to spend no matter what. So you know, another fascinating thing in history was that there was a gold and a silver standard. So in order to create confidence in the paper money, you could go to a bank, a national bank, and you could exchange it for either a certain amount of gold or a certain amount of silver, and it was up to you which one. And so it didn’t take long until people figured out oh, I can arbitrage this. And you know, if gold is up more than silver, you know, this week, or this month, I’ll go in, and I’ll ask for gold. And then I’ll take that gold, and I’ll go somewhere else, and I’ll swap it for silver. And then I’ll go back to the bank and I’ll swap the silver for money, then you know, and then I’ll swap the money for more gold. And then I’ll just repeat this process over and over again. And I hope I haven’t lost anyone in this explanation. But the point is that it couldn’t last. To have the dollar pegged to two different precious metals that were fluctuating separate from one another just didn’t work. And so in the 1890s, the government proposed getting rid of the silver standard. And this was a big, big deal at the time, and one that has kind of been buried in history. I learned about it from a book called Narrative Economics, which I highly recommend. It’s a lot of fun. And maybe that makes me look like a bit of an economic geek. But it was it is a great book by Robert Shiller. And one thing I did not realize that I think would fascinate people to know would be the Wizard of Oz is actually before it was a movie. It was a book and the Wizard of Oz is all about the silver standard. In the original, Dorothy is walking down a yellow brick road, meaning a you know a road paved to gold to the Emerald City, but she’s not wearing ruby slippers. She’s got silver slippers, and she’s encountering a lot of people along the way. And each one of them represented a famous person at the time, who was all for the gold standard. You know, one didn’t have a brain. Somebody didn’t have courage. And I mean, you know the story, but it’s just amazing to think that, that that’s what it was really about. And that people at the time of would have known that. It was quite obvious that that’s what it was about. And I think that they changed it up when they turned it into a movie, just so that we could enjoy it. Take the politics out of it.
Sharla Jessop 4:59
And everyone remembers. Now we can relate the movie to reality.
James Derrick 5:03
Oh, it’s lot of fun. You know in the, the real dominance of the US dollar came though in World War I and then even more so in World War II, when our borders were not being attacked, and we had plenty of oil. And so we’re providing weapons, ammunition, and fuel to the world, especially to Europe in exchange for their gold. And so then it was only natural coming out of World War II because we had the most gold in the world, it was natural that people would want to trade in our currency. The British had been the world currency up to that point. And not only had they given us much of their gold, but also they had dropped the gold standard from their currency back in 1910s.
Sharla Jessop 5:03
And what did that do to their currency?
James Derrick 5:07
Oh, it was a complete disaster. And you know, Jordan Hadfield is going to do a podcast in detail about all the history of the US dollar. And he’ll dive more into that. But it was a complete disaster. And I think that the idea after World War II, that that the British would be the de facto reserve currency of the world that everybody would want to trade in that currency, I think, was wishful thinking. It was all about the US dollar at that point. In the 1970s, we got rid of the gold standard. Some people thought that it would be a disaster for the United States as well. But it turned out to be okay. I think even today, we hear calls for a return to the gold standard, still. What people don’t realize, though, is that the US economy is so big, and so dominant, there’s not enough gold, not even talking about what we’ve got in Fort Knox, or any other storage facility, there’s not enough gold in the entire world to meet the demand that we have for US dollars. So providing enough US dollars for all of the global trade in the world, including, you know, all the oil sold between countries that don’t even involve the United States. I mean, they still want to transact in dollars for the most part. And so we make that possible by making the dollar available for them. We’re in a very strong position, and there’s just a huge amount of demand for the dollar still.
Sharla Jessop 7:14
What’s happening with the dollar now as a currency in value?
James Derrick 7:18
You know, it’s fluctuating every second of every day, just like other investments. And it’s complicated, because it will, you know, it’ll go up and down versus the Yen, it could be up versus the Japanese Yen and down versus the Euro on the same day. So it’s it’s always fluctuating. And it’s complicated. But basically, in 2022, the problem was that the dollar was too strong. It comes with benefits, which Jordan will get into. But basically, we can borrow cheap, especially when we really need to borrow. So it’s a huge benefit. But it does make manufacturing and exporting overseas, more difficult for us. But the US dollar is looking very, very strong. There’s not really another good alternative. So if somebody were to ask me, you know, what the future will bring? Well, I wouldn’t be surprised if there’s a very gradual decline in the dollar. But the fact is, is that there’s just no alternative out there. I don’t think that the Euro, the Yen, the Yuan from China, I mean, I just don’t think that any of those are credible or preferable over the US dollar.
Sharla Jessop 8:26
What about cryptocurrency? There’s been a lot of hype over the last few years. Cryptocurrency has been around for some time, but over the last few years, it’s become big.
James Derrick 8:35
Yeah, it certainly is. First of all, I think the dollar is already pretty digital. You know, they talk a lot about the digital dollar, and I think they may get to the point where they want to blockchain the US dollar so that they can track it electronically, the same way cryptocurrencies do, but I don’t think it would have a big impact on most people. I think that it would, we would not really even notice much difference. It would probably just help the government crackdown on illegal activities. As far as cryptocurrency goes, I think it’s more of a tool of speculation. The technology is fascinating and groundbreaking, and very useful for all kinds of things, even outside of currencies. But for the most part, I think it’s just speculation. And I think that’s the best way to look at it. For the people out there listening and and thinking about it.
Sharla Jessop 9:25
Not strong for maintaining or spending for your average day-to-day expenses and things like that.
James Derrick 9:30
Now one of the most important things that a currency offers is stability. You want your reserve currency that the people are trading in all over the world, you want it to be stable, and that’s something that the US dollar, even though it fluctuates, it doesn’t fluctuate a great deal, and so it will continue to be dominant over the cryptocurrencies for that reason.
Sharla Jessop 9:54
James, this has been fascinating. I’m totally intrigued with this information that you’ve shared. Makes me want to do some more research myself.
James Derrick 10:01
Well, I’m happy to be here and tune in for Jordan Hadfield’s podcast because he’ll be elaborating on these.
Sharla Jessop 10:07
Great! Thanks for joining me today, James.
James Derrick 10:09
You’re welcome.
Shane Thomas 10:15
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Securities America. Inc., Member FlNRA/SIPC. Roger M. Smedley, Sharla J. Jessop, James R. Derrick, Shane P. Thomas, Mikal B. Aune, Jordan R. Hadfield, Registered Representatives. Investment Advisor Representatives of Smedley Financial Services, Inc.®. Advisory services offered through Smedley Financial Services, Inc.® Smedley Financial Services, Inc.®, and Securities America, Inc. are separate entities.
