Recently, many people on the Internet say that the purchasing power of the US dollar is declining year by year. For example, some media statistics found that the minimum hourly wage of $4.03 in 1973 was the same as the purchasing power of $23.68 today, which means that the purchasing power of the dollar has depreciated by 83% in 50 years.
More people use gold as the underlying to calculate the real purchasing power of the dollar. Before the collapse of the Bretton Woods system in 1971, the official price given by the United States was $35 for an ounce of gold, that is, the US government promised that people could exchange $35 for an ounce of gold at any time and anywhere.
With the collapse of the Bretton Woods system, the dollar began to run wildly on the road to depreciation. Today, it costs $2,350 to buy an ounce of gold, and there is room for further upside in the gold price. From $35 to $2,350, the world's most bullish currency has lost 98.5% of its value against gold in 53 years, which does not seem to be an exaggeration to describe it as worthless.
The purchasing power of the dollar has fallen so badly that it stands to reason that countries around the world should abandon the dollar and exchange their foreign exchange reserves for other currencies, and people have thrown it into the garbage heap because they have turned their noses up at the dollar. According to the latest data released by the IMF, as of the end of the fourth quarter of 2023, nearly 60% of countries' foreign exchange reserves were in the form of US dollars, followed by only 20% of the euro and 5.7% of the yen.
What is the contradiction between the sharp decline in the purchasing power of the dollar and the fact that governments, institutions, and individuals still regard the dollar as a "treasure"? Because the dollar is indeed depreciating and its purchasing power is declining, but it is clearly stronger than other currencies. However, some people deliberately emphasize the decline in the purchasing power of the dollar and ignore the depreciation of other currencies.
Currencies with poor credit such as the Argentine peso, the Russian ruble, the Indian rupee, and the Brazilian real will not be discussed, but compared with the yuan. We still choose gold as the target, because only the standard of gold is almost the same, and the standard of real estate, automobiles, and commodities is difficult to unify.
Twenty years ago, in 2004, the price of gold per gram in China was about 84 yuan, and in 2021 it rose to 375 yuan per gram, and the recent investment gold price (non-jewelry gold) soared to 560 yuan per gram. Using gold as the underlying can be calculated that the purchasing power of the renminbi has fallen by 85% compared to 20 years ago.
In 2004, the international gold price was around US$415 per ounce, and now it is US$2,350, and the purchasing power of the US dollar has fallen by 82%, which is not much different from that of the renminbi. The reason for this is that the price of domestic investment funds is originally based on the international gold price, so it is unscientific or meaningless to use the gold price to measure the changes in the purchasing power of mainstream currencies. While complaining about the decline in the purchasing power of the US dollar, he is complaining that the RMB is becoming less and less valuable.
In fact, the history of mankind is a history of currency depreciation, and the purchasing power of no country's currency has increased over time. There is no doubt that the value of the dollar is stable compared to 99% of the world's currencies.
The global economy is increasing with the increase in productivity, and more money is necessary to meet such a huge transaction demand, which is the main reason why the gold standard system has been eliminated from the historical stage. Gold is just that, and as a currency, it simply cannot meet the needs of daily transactions.
In addition, international trade is a long-distance affair that has to be shipped to other countries across oceans and mountains, and it is inefficient, cumbersome, and risky to ship this "currency" to other countries in gold. There are hundreds of thousands of cross-border trades happening every day, so it doesn't necessarily mean that gold is running around on the sea or in the sky every day, right?
Gold is a good thing, the best store of wealth, but it is precisely because the production cannot be expanded that it is not suitable as a payment and trading tool.
Finally, let's go back to the original topic, how do you measure which country's fiat currency is more "worth having" when the purchasing power of all currencies is declining over time?
For example, despite the fact that India is already the fifth largest economy in the world, the country's legal tender rupee is not accepted by companies in almost any country except in India, which may be that Russia in a special period is willing to use it in part of its trade with India, which will not change the fact that the world thinks that the rupee is "worthless". Therefore, the US dollar is undoubtedly the most valuable currency at the moment, regardless of the decline in its purchasing power.