Does Digital Currency Spell the End of the US Dollar?

If you pay attention to the news, you may have picked up on the growing narrative that digital currency could spell the end of the US dollar and fundamentally disrupt the global financial landscape.

Nelson Financial Planning would like to unpack these claims and provide some insights into the world of foreign currency speculation. Then, we’ll cover some surprising statistics you might not have known about your retirement.

Digital Currency—The Cat’s Out of the Bag

Think about how often you use your credit cards, debit cards, and cash apps like Venmo or Zelle. There’s no doubt about it—digital currency is here to stay.

When people wanted to exchange money in the past, they would hand each other a physical piece of paper with a number in the corner. Now, instead of passing around physical cash, you can just tap your phone or click a button on an app. You don’t have to be in the same room or even on the same continent to pay someone.

However, what underlies this exchange is the same level of trust that backs the US dollar with the full faith and credit of the US government. The dollar, whether printed or digital, is backed by a promise to pay the equivalent of the stated amount by the Federal Reserve. So the core essence remains the same—even though the money is digital, it’s still in US dollars.

Is the US Dollar in Decline?

With the prevalence of digital currency, there’s this notion that the US dollar could be on its way out. However, this ignores the reality of the dollar’s current usage and position as the world’s reserve currency.

The dollar is involved in nearly 90 percent of all foreign exchange transactions. Over the past decade, the dollar accounted for 96 percent of trade invoices in the Americas, 74 percent in Asia-Pacific, and 79 percent across the rest of the world. This hardly indicates a currency in decline.

Furthermore, the Federal Reserve has demonstrated its robustness during multiple recent global crises, the first being the 2008 to 2009 financial crisis. The fact that the Reserve went even further during the COVID-19 pandemic in 2020—stopping short of backstopping foreign-denominated assets, bonds, etc.—only reinforces the position of the US dollar as the world’s dominant reserve currency.

The BRIC Countries and the US Dollar

There are suggestions that the BRIC countries—Brazil, Russia, India, and China—are looking to replace the US dollar as the world’s reserve currency. However, there are significant obstacles to this.

Firstly, nearly 80 percent of all global transactions are denominated in US dollars. Secondly, Russia and China, two key players in the BRIC consortium, are authoritarian governments. This creates an uncomfortable level of uncertainty, which does not lend itself to a reliable means of exchange, a crucial element of any business transaction. So the US dollar, despite its flaws, remains unrivaled in the global landscape due to its relative stability and reliability.

Retirement: What You Need to Know

Retirement is a significant phase of life for most people today. Even so, there are several things about retirement that might surprise you.

First, retirement may last longer than you think. The mean retirement age in America is 61 years, while the current life expectancy hovers at around 76 years. These numbers suggest an average retirement period of 15 years. However, this perspective shifts when you analyze the data from a 65-year-old’s perspective.

A 65-year-old has a different life expectancy because they’ve survived potentially life-threatening situations between their 20s and 50s. For example, the average life expectancy for a 65-year-old woman today is nearly 87 years, meaning a potential 22-year-long retirement. Similarly, a 65-year-old man has a 50 percent chance of living to age 84, which could result in a 19-year retirement.

These extended retirement periods highlight the necessity of an investment strategy that goes beyond ultra-conservative portfolios. After all, portfolios predominantly consisting of cash or bonds might not be sufficient for a retirement spanning 20 to 25 years. To keep pace with inflation and taxes, and to ensure sufficient growth over time, a balanced and diversified investment approach is needed at all ages. Therefore, you may want to rethink the common practice of switching entirely to cash or bonds upon retirement because it might not be as effective as you imagine.

Furthermore, relying solely on Social Security for retirement income will likely be inadequate. The average monthly Social Security check is about $1,800, which only provides a comfortable standard of living if you fall within the bottom quartile of income earners. Therefore, it’s crucial to save money and make necessary provisions to fund your retirement adequately.

Starting small is better than not starting at all. Even if it’s just $50 or $100 per month, the important thing is to get the ball rolling. Your future self will thank you.

Contact Nelson Financial Planning

In summary, while digital currency is certainly here to stay, it does not spell the end for the US dollar, and the world is not on the brink of a financial catastrophe. The US dollar remains strong and is still the world’s reserve currency. Regarding your retirement, it’s essential to start saving early. Retirement planning is a dynamic process that should be adjusted according to your circumstances, financial goals, and evolving economic conditions.

For professional assistance with financial planning, retirement planning, and investment advice, please contact Nelson Financial Planning in Winter Park, FL, at 407-629-6477. We can help you change your life with a successful financial plan that provides peace of mind for the future.