Ditch the Dollar?

Next week, the G20 will be meeting in London to discuss reforming the world’s financial system. One idea that’s been floated is to ditch the dollar as the world’s reserve currency.
Any move like that won’t happen at a meeting by a lot of men and in women in nice suits. Instead, it will be a judgment of the world’s investors. The latest person to call for replacing the dollar as the world’s reserve currency is Zhou Xiaochuan, who’s a governor at People’s Bank of China (aka the Chinese Fed).

China is a huge holder of dollars. According to the latest stats, China holds some $1.95 trillion dollars in foreign exchange reserves. That’s an astounding figure and it reminds me of the old banker’s saying that if I owe you $100, it’s my problem. If I owe you $1 million, then it’s your problem. I guess we can now say that if I owe you $1.95 trillion, then it’s the world’s problem.

One possibility is to replace the dollar with a basket of currencies. Russia wants to discuss the idea of making a supranational reserve currency.

Some folks will point out that we already have a supranational reserve currency, and it’s been used for a few thousand years. By that, I mean gold–and the yellow metal has been doing very well recently.

But gold is highly volatile so it’s only one way to profit from the coming demise of the dollar. The best way for investors to capitalize on the decline and fall of the dollar is to load up on stocks of companies that will do well in the coming commodities boom. It’s not just gold, but it will include oil, natural, steel, food and many other commodities.

Some of these include Southwestern Energy (SWN), Occidental Petroleum (OXY) and Hess Corporation (HES).

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