Billionaire investor Stanley Druckenmiller: USD will lose reserve currency status by 2036
- Billionaire investor Stanley Druckenmiller said the US dollar may lose its global reserve status.
- For many years, the US dollar benefited by default of being 'cleanest dirty shirt in the room'.
- He said the solution is hard to imagine today but it may be "some kind of ledger system."
The era of the US dollar reigning supreme in the global stage could end by 2036, according to billionaire investor Stanley Druckenmiller. The culprit isn’t a rising foreign power, rather the US Federal Reserve itself as the central bank’s policies are completely out of whack with reality.
Questioning the Fed’s policies
The US Federal Reserve deserves credit for maintaining a baseline level of support for the US economy during the early stages of the COVID-19 pandemic, Druckenmiller said Tuesday on CNBC’s “Squawk Box.” But much has changed over the past year as the gradual reopening of the economy is allowing struggling businesses the opportunity to catch up while consumers are more comfortable in spending money once again.
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Instead of a policy that reflects the recent economic momentum, the Federal Reserve continues to promote low interest rates and trillions of dollars worth of bond purchases. Most notably, the Fed’s policies are playing a role in supporting $5 trillion worth of stimulus spending with several trillion more to come through President Biden’s infrastructure-related investments.
“I can’t find any period in history where monetary and fiscal policy were this out of step with the economic circumstances, not one,” Druckenmiller said.
‘A conversation’ is needed
The Federal Reserve’s actions today will translate to large amounts of debt and deficits over the coming years, Druckenmiller continued. By default, this will directly threaten the US dollar’s reputation as the world’s reserve currency.
Druckenmill, 67, said he is worried “for the first time” that within 15 years the US dollar will be replaced at the global stage.
“If they [the Fed] want to do all this and risk our reserve currency status, risk an asset bubble blowing up, so be it. But I think we ought to at least have a conversation about it,” Druckenmiller said.
At the heart of the issue is Fed Chair Jerome Powell whose policies created “a lack of trust” among the investment community.
Can cryptos replace USD?
For many years, the US dollar benefited by default of being the “cleanest dirty shirt in the room,” Druckenmiller said. Across the Atlantic ocean, Europe’s currency is a “complete mess” while “no one can trust” China.
While difficult to model if Bitcoin will replace the US dollar in the future, the ultimate solution may be “some kind of ledger system” that has yet to be created. But Druckenmiller acknowledged he himself does not know what the future of money would look like.
“I don’t know what it will be,” he said.