Dollar value may drop as reserve status faces pressure

Economist Peter Schiff warned on May 6 about a potential sharp decline in the U.S. dollar’s value, attributing the risk to structural trade imbalances and the dollar’s role as the global reserve currency.

“The U.S. dollar is about to free fall and gold will soar to heights few can imagine,” Schiff stated on social media platform X.

He argued that the only solution to America’s persistent trade deficit is to end the dollar’s reserve currency status.

Schiff criticised proposals like investor Bill Ackman’s suggestion of increasing tariffs on Chinese imports, calling them ineffective.

He emphasised that the root problem lies in U.S. fiscal policies rather than foreign trade actions.

According to Schiff, China’s decision to reduce its support for the dollar by lending less and limiting purchases of U.S. goods could accelerate the dollar’s decline.

“The dollar will be losing purchasing powers, encouraging people to spend them as fast as they can,” he noted, highlighting concerns over inflation-driven consumption.

Schiff also commented on Federal Reserve Chair Jerome Powell’s recent statements after the Fed’s May meeting, where interest rates were held at 4.25% to 4.5%.

“We’re in a lot of trouble. The economy is weak and getting weaker, but the Fed can’t cut rates as inflation is getting stronger,” he stated, interpreting Powell’s remarks as signaling economic weakness combined with limited policy options.

Schiff explained that the Fed faces a dilemma: raising rates risks a financial crisis, while lowering rates could worsen inflation.

This situation, he said, leaves the Federal Reserve’s tools ineffective in managing the current economic challenges.