Will the U.S. Dollar Collapse? November 2024 Analysis

According to economists, the U.S. dollar’s collapse is unlikely, but it’s still important to understand what would lead to it and how to prepare for it. A dollar collapse means the value of the U.S. dollar plunges. The result would be significant economic instability, increased prices of goods, and heightened anxiety among the American people.

Keep reading because we’ll explain exactly what would happen during a collapse, how likely it is, and what would happen to the housing market and other investments if that were to occur. After reading, you’ll feel reassured and confident about preparing for a potential crisis.

What is the U.S. dollar collapse?

A U.S. dollar collapse refers to a scenario in which the value of the U.S. dollar plunges relative to other currencies. This devaluation can lead to severe inflation, making everyday goods and services far more expensive for American consumers. Factors such as a loss of confidence in the U.S. economy, rising national debt, or significant geopolitical shifts that cause other countries to abandon the dollar as the global reserve currency could all trigger a collapse.

While concerns about the dollar’s stability exist, most economists consider a complete collapse unlikely. However, if it did occur, the widespread domestic and international ramifications would affect trade, savings, investments, and overall financial stability.

What does the collapse of the U.S. dollar mean?

The collapse of the U.S. dollar would mean a huge drop in purchasing power. This could disrupt international trade and influence the cost of imports and exports. Some countries might not even accept a considerably weaker dollar.

In sum, this scenario, albeit unlikely, would negatively affect Americans’ everyday lives. Necessities would become unaffordable, and many people could see their savings considerably devalued. This would trigger anxiety and worry across America as people tried to grapple with managing their personal finances.

What would cause the U.S. dollar to collapse?

Here are the factors some experts say could contribute to the U.S. dollar collapsing over time:

1. Increasing national debt: The national debt in the United States is increasing at an unprecedented rate. It’s growing at the fastest pace of any other developed country and is at $34.62 trillion at the time of writing.
2. Rise in inflation: According to the USDA, food prices increased by 5.8% in 2023. Many other necessities and services are also on the rise. The need for more dollars to afford basic items would bring more economic challenges.
3. Increase in use of other currencies: The U.S. dollar is now the dominant currency in international trade. However, we’ve seen an increase in the use of other currencies globally, such as the Chinese yuan. The dollar still remains the primary currency, but over time, if currencies get more diverse, the power of the dollar could dilute.
4. Reduced global confidence: If other countries lose faith in the United States and how officials handle the economy, the national debt, and inflation, it’s possible other governments would divest their dollar-heavy investments. This could also contribute to the dollar’s collapse. 

How likely is the U.S. dollar to collapse?

Most economists say the U.S. dollar’s collapse is highly unlikely, but some detractors believe it’s imminent. Here are expert opinions about why some feel it will collapse and others think it won’t.

Why the U.S. dollar will collapse

According to Gayle Allard, Professor of Economics at IE Business School, the national debt crisis is the primary factor that could cause the economy to collapse. She explains that the U.S. would respond with higher interest rates if the dollar weakens. 

This tactic, she explains, will “possibly [strengthen] the dollar temporarily,” but it would also cause “increases around the world, further reducing U.S. and global growth.” This, coupled with a loss of trust in the U.S. dollar on a global scale, could “deprive the United States of the privilege of being able to borrow unlimited amounts at some of the world’s lowest interest rates.”

In summary, she believes that rising national debt and potential global loss of confidence in the U.S. dollar could undermine its value, ultimately stripping the U.S. of its borrowing advantages and harming domestic and global economic growth.

Why the U.S. dollar will not collapse

Kathy Jones, Managing Director and Chief Fixed Income Strategist at the Schwab Center for Financial Research, says, “While the dollar has declined over the past six months, it remains close to a 10-year high versus currencies of countries with which the U.S. trades.” 

She also highlights that the dollar “remains the primary currency used for trade and financial transactions in the global economy.”

The U.S. government will intervene during times of economic instability. The government has policies in place, such as adjusting interest rates to control inflation or lowering rates during a recession, that help stabilize the economy in times of crisis.

It is rare that I encounter clients who are concerned about the U.S. dollar collapsing, but it has been brought up in conversation. For those who express concern, I remind them to maintain their diversified portfolio (possibly including real estate, if appropriate) and to lean on their financial plan for peace of mind.

Erin Kinkade, CFP®

When will the U.S. dollar collapse?

It’s hard to speculate when, if ever, the U.S. dollar will collapse. Some experts, including Mitch Daniels, the president emeritus of Purdue University and a co-chair of the Committee for a Responsible Federal Budget, wrote in the Washington Post that “America is racing toward a fiscal apocalypse, unprepared for the serious social upheaval that could result.”

However, Kathy Jones from Schwab Center for Financial Research says, “In our view, a gradual move to a global economy with a less-dominant dollar is possible over time, but we don’t see the dollar losing its reserve currency status.” Jones also mentions that the concern about dollar devaluation is “overblown.”

Economists and analysts agree that the growth of America’s national debt is a serious economic concern. However, when (or whether) this damage will have maximum impact now, in the near future, or in decades remains speculative at this point.

What happens if the U.S. dollar collapses?

Here is how a U.S. dollar collapse would affect various aspects of American life.

Product	Impact
401(k)	Americans could see their retirement accounts lose considerable value, especially if the majority of their investments are in U.S. assets.
Housing market	Because interest rates would increase, it would be more challenging for people to buy homes. This, in turn, could cause many homes to lose value.
Loans and lending	Loans would come with higher interest rates, making it difficult for individuals and businesses to borrow affordably.
Credit cards	Credit card interest rates could increase, making it hard for consumers to pay down high-interest debt.
Necessities	The cost of necessities, such as food, gas, and clothing, would increase, making it hard for the American population to afford them.
Investments	Any investment made using U.S. dollars would be devalued.

What would happen to your 401(k)?

If the majority of American workers invested in American assets using U.S. dollars, the overall value of their retirement accounts would decrease.

What would happen to the housing market?

Interest rates would increase, making it harder for people to purchase homes. The dollar’s lower value would also lower the value of homes.

What would happen to loans and lending?

Borrowing money through loans would become far more expensive because interest rates would increase. This would be a natural consequence of the devaluation of the dollar because lenders would need to protect themselves from the risk of an unstable economy.

If it’s difficult for businesses to afford loans, it could stifle business growth in America overall.

What would happen to credit card interest rates?

Although credit card interest rates are already high, they could rise even higher in the event of a dollar collapse. Consumers with high-interest debt would have a more difficult time paying down their balances. Households would experience significant strains as they try to manage credit card debt with the rising cost of living.

What would happen to the price of everyday goods?

Because of hyperinflation, necessities such as food, gas, utilities, clothing, and other items would increase. The United States imports many items, and those importation costs would become more expensive. Those higher costs would be passed on to the American consumer in the form of higher-priced goods.

What would happen to investments?

Investments overall, especially those held in U.S. dollars, would lose value. Mutual funds, index funds, individual stocks, and bonds would be devalued because the dollar itself would be devalued. This could also affect foreign countries that invest heavily in U.S. assets.

How to prepare for and survive the collapse of the U.S. dollar

According to financial analysts, it’s unlikely the U.S. dollar will collapse. However, J.P. Morgan research reports a 45% chance the U.S. will be in a recession by the end of 2025. For those reasons, it’s wise to prepare your finances just in case. We also recommend considering survival strategies.

Preparation strategies center on being financially ready for a downturn. That means having enough of a financial runway to ensure you can stay in your home and buy food to eat even if you lose your job. Survival strategies are more extreme, such as stockpiling food and learning to be self-sufficient in the event of a major dollar collapse.

Preparation strategies

Diversifying your investments is smart in general and can also be a good preparation strategy in case of an economic crisis. Diversifying means investing broadly in numerous different categories and asset classes by buying diverse stocks and bonds and considering purchasing precious metals like gold.

Not all economists agree that buying gold is a way to hedge inflation. For example, an article from the CFA Institute reports that gold hasn’t always been a reliable inflation hedge, similar to how bonds can’t always hedge stocks. But the CFA data shows the value of gold is at its highest since July 2020, so it could be a worthwhile addition to your investment portfolio.

If you’re interested in buying precious metals to prepare, we recommend starting your search with these highest-rated gold dealers:

It’s important to prepare your finances in other ways, too, such as saving a large emergency fund and paying down high-interest debt. In a worst-case scenario of a dollar collapse, interest rates could rise higher, which can make getting out of credit card and other high-interest debt more difficult.

Even if we think a full collapse of the U.S. dollar is unlikely, I recommend the following in case of a recession or other challenge to the economy:

1. Maintain an emergency fund or cash reserves fund—for all lifestyle expenses, not just for emergency reasons—up to at least six months’ worth. (I personally like to see up to 12 during periods of uncertainty and for those living on a fixed income.) 

2. If we know there is a cash need from an investment account within the next 12 to 18 months, proactively make the cash available now and set it to the side. 

3. If you don’t have the risk capacity to withstand the recessionary period, rebalance your investment accounts to allocate more to less risky assets. Talk to your financial advisor or a financial professional to assess or reassess your risk tolerance and associated risk capacity.

Erin Kinkade, CFP®

Survival strategies

In addition to preparing your finances, you can consider implementing basic survival strategies. For example, create a stockpile of canned food when it is on sale. 

It’s also wise to store water and basic supplies with you. While some might consider these strategies extreme, recent experiences during the COVID-19 pandemic show that having food on hand helps in a crisis.

Having a support network and a community is always helpful. Even if we don’t weather a recession or other type of economic collapse in the future, having people you can rely on and pool resources is invaluable during times of need.