It sounds absurd to talk about the breakdown of the US dollar, but the aftermath of such a move would be nothing but monumental. The dollar is the world’s accepted reserve currency and the standard by which most global commodities are priced. In the event that the dollar would decline in value or even break down totally, this would change drastically the landscape of the commodities trading market, and shocks would flow to the investor, business and consumers.
Their near-term impact would be on the price of commodities. Since most raw materials such as oil, gold, and food products are quoted in US dollars, the precipitous fall in the value of the dollar would more likely lead to a sharp increase in commodity prices. In this sense, if the value of the dollar has decreased, oil-producing countries may well increase their price to recover for the decline in the currency. This would drive up fuel prices worldwide, raising the cost of goods and services for nearly every industry. From groceries to airline tickets, consumers are likely to begin feeling the effects of higher costs as businesses attempt to absorb these added costs.
On the flip side, a weakening or crumbling dollar might spur more demand for alternatives such as gold. Indeed, precious metals have been considered a safe haven at times of economic unease throughout history. When the dollar loses purchasing power, investors may turn to gold and other commodities, which would hike up their prices. This spurt to alternative assets would be likely to heighten activity in commodity trading, with added fervor among dollar bears. Gold has remained one of the few reasons for comfort in currencies getting devalued, so this event would only enhance its appeal, as the dollar’s tendency to decline would cut both ways.
A dollar collapse would severely affect businesses since many multinationals operate in exchange-based worldwide supply chains that are quoted in dollars. A weak dollar will make importation expensive for U.S. companies. It will squeeze the profit margins and force costs higher on consumers. The benefit to U.S. exporters would come from a lower dollar that makes their goods more price competitive in international markets. This could well increase demand for American-made products outside the country, but the net effect within the domestic economy is likely to be more inflationary pressure.
Speculative traders in the commodity markets would be exposed to a sharply increased volatility after the breakdown of the dollar. Variations in currency normally lead to wild fluctuations in the commodities’ prices. A sudden drop in the dollar may cause unpredictable and volatile price movements. A volatile environment of this type will be both rewarding as well as risky for those commodity trading. Those who succeed in the turmoil can benefit, but uncertainty may discourage many from entering the market, increasing the cost of liquidity and making it even more difficult to make informed trades.
A dollar collapse would raise concerns about the global economic order. Countries with the most dependency on using the dollar in their trade, especially emerging markets, will be the most adversely affected. Inflation will increase for countries in which import costs have risen with a weakened dollar. Of course, other countries that are less dependent on the dollar will be less damaged, but uncertainty would still send shivers down the spines of international trade and finance.
It would have huge effects on commodities markets as the prices of commodities are expected to increase in relation to the depreciation of the dollar. The demand for other investment avenues, including gold, would most likely peak as well. Operations at the companies and traders’ level would face higher turbulence in trying to predict what is happening in the markets, but globally, the economic order would change as countries become accustomed to this new reality of currency limitations. The after effect of such a crisis would guarantee that the future of commodities trading would never be certain, but there would surely be ripples in most industries and markets around the world.
