A reserve money is used by the world’s people to buy from and sell to one another.
If a reserve money is produced by a nation’s politicians, this is both good and bad. It helps the nation’s people buy more products from other nations’ people. But it also helps the nation’s politicians borrow and spend more.
When the nation’s politicians borrow and spend more, that forces the nation’s people to invest less and produce less. At the same time, that also forces the nation’s people to pay interest and pay back principal. (Although constitutionally they are required to push back against repaying any debts incurred to finance Progressive politicians’ rebellion, by repudiating those debts.)
The people and the government people each do their part
The people of the USA make the dollar desirable as a reserve money because they create a wide array of products that people everywhere want. These products include assets, skilled labor, materials and energy products, intermediate products, and final products. Some of these products can’t be found anywhere else at a comparable quality and price. A few of these products can’t be found anywhere else at all.
USA government people make the dollar desirable as a reserve money if they make people’s life, liberty, and property secure.
But USA government people are doing worse at this, and that is making the dollar less desirable as a reserve currency, due to a couple of key actions. First, they have long granted bankers license to steal interest they haven’t earned by collecting deposits, by instead simply creating dollars and loaning them out. Lately, they are pushing bankers to lower interest rates even more than in the past by creating even more dollars. Both actions dilute the value of the existing dollars that the world’s people have been using to buy from and sell to one another.
Predictably, USA politicians keep spending more, and they keep making us pay for it by borrowing more, and this is making the dollar worth less over time. USA politicians have kept this up throughout the Progressives’ century-plus since 1894.
The long-term historical purchasing power of the dollar is approximated in the figure.
Figure: The dollar’s purchasing power, 1800–2024. Semilog plot using CPI data, scaled so purchasing power was 100% in 1894.
The figure’s vertical axis has a log scale. On such a semilog graph, a sloped straight line indicates that there has been a constant rate of exponential growth or decay.
At first, the USA government people held to a fractional-reserve gold standard. In general, people’s productivity increased exponentially, and as a result, the dollar’s purchasing power also increased exponentially.
But since the government people allowed bankers to lend out more money than people had saved, this practice’s intrinsic instability periodically caused sensible runs on banks that have been called panics, across which the dollar’s purchasing power decreased exponentially. Also, government people periodically caused wars, across which the dollar’s purchasing power also decreased exponentially, at even faster rates.
Later, across the Progressives’ century-plus, politicians started decreasing the dollar’s purchasing power at exponential rates.
Even the one period of seeming respite — the Roaring Twenties followed by the Great Depression — brought its own deprivations. These included WWII, which was brought on by the new Fed’s 1920s boom and 1930s bust.
Progressive politicians’ debasement of the dollar’s purchasing power proceeded at faster exponential rates across sustained periods around WWI, WWII, the 1970s Great Inflation, and government people’s COVID responses.
Reserve moneys’ customers are always right
This latest time is different. USA gross public debt as a percentage of GDP is now a historically high 139% and is still growing without limits.
If something cannot go on forever, it will stop.
Eventually, creditors will stop buying depreciating bonds at affordable interest rates, or the people will stop keeping up with interest payments.
In the more inflationary 2000s, people’s usual capital-preserving shift away from underperforming stocks and depreciating moneys and toward hard assets has begun already and is increasing.
Since 2010, gold has been increasingly bought by various nations’ central bankers. Since January 2025, gold has been increasingly bought by various other institutions and individuals. If current central bank holdings would simply stay the same but the price of gold would rise from $4,000 per ounce to just $5,600 per ounce, the world’s largest reserve asset would no longer be dollars. It would be gold.
The USA people already produce much of what the world wants.
Also, with only few exceptions, all in smaller nations, USA government people beat other nations’ even worse government people, making property more secure here than elsewhere.
But that’s not as good as things could be. The USA people will be freed to create far more value once our governments become less able to borrow on the backs of all of us.
So it’s great news for the USA people that the choices of myriad people in other governments, other groups of people, and individuals are converging to transition the world’s reserve money from the dollar to gold.
The way things work in practice in the real world, things could hardly be better for freedom and for everybody’s future.
