Stealth Erosion of Dollar and its effects on Stock and Bond Markets - Evidence from the past and way forward

Registration ID: IJNRD_216529

Published ID: IJNRD2403551

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Rohit Rajeev, Krishna MC

Gold Standard, Inflation, IR Rates, Gold Reserves, Reserve Currencies, USD as a reserve

Abstract: Purpose – This study examines the impact of a reserve currency shift on the stock and bond markets. It investigates factors driving de-dollarization. Although de-dollarization's current effect is minimal due to limited country involvement, widespread adoption could have a catastrophic impact on the USD and the US economy. Design/Methodology – This event study gathers data including US inflation rate, foreign bank interest rates, gold reserves, and export data between countries and the US. By analyzing these variables alongside historical events of currency reserve changes, we aim to forecast the potential impact of a shift in reserve currency due to the absence of a gold standard method for currency valuation. Findings – The USD's reserve currency status significantly impacts the global economy by reducing borrowing costs, though this benefit is skewed towards the US. Other countries, borrowing in USD, must earn more to service their debt. This status also constrains other countries' monetary policies. Returning to the gold standard could alleviate USD-related issues but would entail significant shifts in markets and currencies. Practical Implications- In the past, there was a shift in reserve currency from GBP to USD, but GBP was backed by Gold. Right now, USD is not backed by Gold as it was removed from gold standard. Implication would be a steep depreciation of USD, US losing the spot of world’s largest economy, change in currency valuation methods from valuing against USD intrinsic value to the gold reserves held with countries and a major market crash. Social Implications – With a change in reserve currency, the largest stock and bond markets would now be valued at par with the new gold-backed currency. It would impact the market investors and players majorly. Long-term implications would be positive since would be control in the level of unprecedented inflation caused by fiat currencies, and assets would have a better value and store of value.

Published Paper   E-Certificate

Rohit Rajeev & Krishna MC (March-2024). Stealth Erosion of Dollar and its effects on Stock and Bond Markets - Evidence from the past and way forward. INTERNATIONAL JOURNAL OF NOVEL RESEARCH AND DEVELOPMENT, 9(3), f441-f475. https://ijnrd.org/papers/IJNRD2403551.pdf

Volume 9 Issue 3, March-2024

Pages : f441-f475

Paper Reg. ID: IJNRD_216529

Published Paper Id: IJNRD2403551

Downloads: 000122258

Research Area: Management

Author Type: Indian Author

Country: Kottayam, Kerala, India

Published Paper PDF: https://ijnrd.org/papers/IJNRD2403551.pdf

Published Paper URL: https://ijnrd.org/viewpaperforall?paper=IJNRD2403551

Journal Name: INTERNATIONAL JOURNAL OF NOVEL RESEARCH AND DEVELOPMENT(IJNRD)

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