This week, China began letting its currency, the yuan, trade against the Russian ruble. It's part of a campaign of moves that could lead to further declines in the value of U.S. denominated investments—something you should take steps to protect yourself from.
For many decades, the U.S. dollar has been the world's leading reserve currency: The U.S. was the largest consumer and every nation needed to do business with us. That's why most commodities, for example, are priced in U.S. Dollars. While there are plenty of other currencies in the world, none are as freely exchangeable or in such wide use as the dollar. (The runner-up so far has been the euro.)
Since the financial crisis began, the central banks of both Europe and the U.S. have embarked on quantitative easing campaigns to devalue their currencies, in order to stimulate exports and solve their debt crises. Nor does it look like these campaigns are anywhere near over.
China, which has now become the world's second-largest economy, clearly sees that the time may have come to start bringing the yuan into greater international use. Over the past year or so, China has begun letting the yuan trade directly against a number of currencies, including the euro, the yen, the Hong Kong dollar, the pound, the Malaysian ringgit, and now the ruble. The yuan's new tradable status reflects China's greater contribution to the world economy.
Meanwhile, the U.S. seems determined to aid the yuan's rise. The U.S. Congress continually promotes the idea of pressuring China to let the yuan gain value (part of the effort to let the dollar sink).
Don't get me wrong. I don't expect the yuan to replace the dollar as the world's reserve currency anytime soon. But if the dollar remains volatile, the international community would have good reason to create a new reserve currency—most likely composed of a basket of currencies that includes the yuan and gold.
As this process unfolds, dollar-denominated stocks, bonds, and other assets could lose value. It's a form of inflation, which could make it much harder for you to maintain your lifestyle or save for the future.
（From Dr. Stephen Leeb's e-mail）
