Can Gold Replace USD?

The USD weakened after Moody’s cut the US credit rating by one notch from Aaa (the highest rating) to Aa1, attributing the downgrade to the increasing fiscal deficit, as well as the rising interest rate costs on federal government debt. The 30-year US Treasuries yield exceeded 5.0% per annum, indicating investors’ nervousness about US deficits and debt sustainability. 

While leading Financial Times columnist Martin Wolf worries about Trump’s assault on the US dollar, he and most economists agree that there is no suitable alternative to the US dollar.

 

Source: https://en.wikipedia.org 

Wolf lists five possible alternatives: first, either yuan or euro; second, a two or three reserve currency world; third, the US dollar status quo; fourth, a global currency like Special Drawing Rights (SDRs); or fifth, a cryptocurrency world. Fiat currencies are not serious alternatives to the US dollar, but gold could. 

The United States formally adopted the gold standard in 1900, which then President Richard Nixon abandoned in 1971, launching the era of floating exchange rates. The US dollar is supremely efficient as a unit of account, means of payment (over 80% of trade invoiced in US dollars and half of foreign currency payments through the interbank SWIFT system), as well as a store of value (currently 57% of official foreign exchange reserves, down from roughly 70% in 2000). 

Backed also by superior military, technology, finance and economy, the US dollar supremacy is America’s to lose, not easily taken by any challenger. 

However, the US dollar’s exorbitant privilege is a winner’s curse. The unprecedented fiscal and trade deficits give rise to higher external debt and consumption. Lacking internal fiscal discipline due to profligate spending, America’s debt has risen to a critical point whereby interest rate payments today are one of the largest drains on fiscal resources. Gold is a good hedge against inflation in uncertain times. 

Sailors know that if one anchor is perceived as wobbling, they need two or three anchors to create some stability against turbulent currents. Gold will not replace the US dollar as an efficient means of payment, but it will become increasingly an alternative store of value. Then what is the alternative for payments – it is probably a couple of currencies – still the USD (but less in volume or share), Yuan and the Euro! 

Reference:

Can gold replace US dollar? Tan Sri Andrew Sheng, Insight, The Star, 24 May 2025