What is interesting to me is that collectors have had an eye on foreign exchange rates as long as I have been plugged into the hobby via the media.
I subscribed to Coins Magazine in the summer of 1967. It was a heady time. The British pound was devalued in November of that year from $2.80 to $2.40. Some months later France’s President De Gaulle tried to force a dollar devaluation on the United States by presenting as many dollars as he could muster for payment in gold at the official $35 an ounce rate. His gambit failed. In the end, it was the French franc that was devalued.
That doesn’t mean the U.S. dollar wasn’t weak then. It was. It just means other currencies were even weaker.
The 1970s had one dollar crisis after another. The gold window was shut in 1971 and the dollar was officially devalued. It was officially devalued again in 1973. Then the idea of official devaluations became quaint and not used anymore.
In the following years we collectors got used to floating exchange rates where the dollar’s value changes every day.
The dollar has become cyclical. The dollar was weak in the 1970s. In the first half of the 1980s it soared. Then it became weak again. Then it soared again once Robert Rubin became Treasury secretary in the 1990s. Gold moved inversely to the dollar’s fluctuations.
Since 9/11, the dollar has become weak once again and as during the Vietnam War, we are spending more than we are taking in, causing further weakness.
What does the future hold? I don’t know precisely, but the long-term trend is pretty clear. The dollar will head lower in terms of purchasing power no matter what the trend on foreign exchange markets. Central banks seem to prefer an annual 2 percent depreciation.
A second observation I will make is that this virtually guaranteed rate of dollar depreciation doesn’t prevent market snapbacks and years-long upward thrusts in value. Just about the time everyone has bought as much gold and other assets as they can, the dollar snaps back. Usually the new uptrends start when just about everybody is pronouncing the currency dead.
For collectors, this means two things: if you want to speculate, make sure you can ride through the dollar upward movements. The other is don’t be mesmerized by the dollar’s value when making collecting decisions. Just as the very long-term value of the dollar is downward, the very long-term value of U.S. coins is upward.