USA Downgraded. Is Reserve Currency Status Threatened?

USA Downgraded. Is Reserve Currency Status Threatened?
 
On Friday, May 16, 2025, after 5:00 pm ET (after Wall Street had left the office), Moody’s downgraded the US from Aaa to Aa1. According to Moody’s, the downgrade “reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns. Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.”
 
Moody’s action wasn’t a surprise. The only real perplexity was, “Why did they take so long?” S&P Global downgraded the U.S. from AAA to AA+ on August 5, 2011; Fitch Ratings followed suit on August 1, 2023. With Moody’s downgrade, all 3 major rating agencies are in agreement about the U.S. sovereign credit – that it is very good, but budgets must be balanced and debt reined in.
 
You can bet that the hucksters will be out in force, urging everyone to hedge against the dollar becoming worthless by purchasing this or that talisman – typically gold or cryptocurrency. Please beware. The ruses today are very sophisticated and can include sham statements that show amazing gains.
 
Does an AA+ sovereign rating threaten the USA‘s global currency reserve status? Is this the beginning of the end? Which countries are still rated AAA? Email [email protected] if you’d like a more complete list of country ratings, including BRICS and Japan.

Here are the topics we will cover in this blog.
 
What is required to be a global reserve currency? 
BRICS
The Euro 
Canadian and Australian dollars 
The Japanese Yen 
What does the downgrade mean for you? What kind of defensive or offensive wealth decision should you be considering? 
 
Let’s start off with a general overview of where the U.S. stands with regard to reserve currency status, then proceed with a dive into the pluses and minuses of the other currencies mentioned above, and end with actions we can take to protect and grow our wealth safely.
 
Global Reserve Currency
The U.S. is still by far the currency of choice of central banks. However, it has seen its dominance drop over the past two decades, from 71% of the global currency reserves in 2001 to 57.3% in the 3rd quarter of 2024, according to the International Monetary Fund. A lot of the decline had to do with the launch of the euro in 1999. What we have now is a basket of currencies. (See the chart below.)
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What does it take to be a global reserve currency? 
 
Liquidity
Safety
Trust
A Large, Strong, Diversified Economy
 
Central banks and governments are looking for the above four key factors when they decide which currencies to hold, and which to use when buying and selling products and services across their borders. The U.S. dollar is very liquid. It has a proven record of safety, which earned it the trust of governments and banks around the world. The U.S. economy is slowing down, however. While the tariffs are a moving target and stocks have rallied on the hope that the worst is over (not likely), there are still economists pegging the odds of a recession in 2025 at 35-50%. 
 
Before we buy into the bait of the dollar becoming worthless, there are a few considerations. The U.S. has a track record of inventing the products of tomorrow. America has, in the past, attracted the top talent from around the world. Sergey Brin, Google’s co-founder, was born in Moscow. Elon Musk hails from South Africa. California is the 4th largest economy in the world and is home to the world’s breakthrough technology and biotechnology products and innovation. The U.S. has a track record of paying its bills. “Never bet against America,” according to Warren Buffett.
 
So, what about other currencies? How do they measure up? Will the euro or BRICS surpass the U.S. dollar? We must really put each through the test of the four key factors to answer that question.
 
BRICS
Brazil, Russia, India, China and South Africa.
Take a closer look at that list. How many of these countries are on the top of your Bucket List? If so, great. If not, why? Is there a trust factor weighing on your decision to travel there? If you’re concerned about travel, shouldn’t you also be uneasy about money? Are you aware that three of the countries have a speculative (high risk) credit rating? (Brazil, Russia and South Africa.) Would someone want to take your BRICS bills in exchange for their product or service, or would they rather you paid in dollars, euros or pounds? In some parts of the world, the locals would prefer that you give them U.S. dollars.
 
When I visited India in 2018, it was difficult to pull out more than $75 a day in cash. The bank set limits, and even then would run out of money within a few hours of opening. Also, India has been notorious about restricting the movement of funds out of the country. If you look at the Index of Economic Freedom, four of the countries are all considered to be “mostly unfree,” while China is characterized as repressed. While these countries are trying to break the dominance of the dollar by trading BRICS amongst themselves, the currency didn’t jump on the stage with the same vigor that the euro did.
 
The Chinese yuan is having slightly better popularity, but it is still just 2% of the allocated foreign exchange reserves. China’s economy is large and growing. However, safety, trust and liquidity remain concerns.
 
The Euro 
The euro has stayed steady at about 20% of the global reserves since it launched in 1999. While Germany, Luxembourg, and the Netherlands are rated AAA, there are others with much lower credit ratings, including Italy (BBB) and Greece (BBB-). Greek bonds had to be bailed out in 2011 and were at the heart of the MF Global bankruptcy. Many investors received less than a third of their principal in the deal. Central bankers have a memory of this and are aware that the euro includes a mixed bag of country risk. This is likely why the euro hasn’t gained more market share.



Canadian and Australian dollars 
Along with the Chinese yuan, Canadian and Australian dollars have grown to represent about 9% of the world’s currency reserve. Canada and Australia are very free. Australia has an added benefit of being AAA rated, with much lower debt than most developed world countries. However, both economies are experiencing slow growth. Additionally, Australia’s GDP is $1.8 trillion. Canada’s is $2.3 trillion. Meanwhile, the U.S. GDP was $29.35 trillion last year.
 
The Japanese Yen 
Japan’s GDP is also small compared to the U.S. and China, at $4.02 trillion. According to a press release issued by California Governor Gavin Newsom on April 23, 2025, California surpassed Japan’s GDP to become the 4th largest GDP in the world, at $4.1 trillion. The strength of California’s innovation (and universities), particularly in technology and biotech, contribute to the strength and growth of the U.S. economy. The Magnificent 7 companies – five of which were launched in California – led the gains on Wall Street in 2023 and 2024, doubling in value in 2023.
 
Important strategies for wealth protection and growth in 2025 and beyond
It’s important to notice trends. Clearly, the U.S. has been downgraded and has lost market share with regard to the global currency reserves. How does this affect our wealth plan – including the value of our home and retirement plan? Incidentally, investors around the world own U.S. equities and fixed income products. Whether you are living in the US or not, when the US sneezes, the world catches a cold. So, the strategies outlined below apply whether you’re in Europe, Canada, Mexico, one of the BRICS nations, South America, or in the United States.
 
Cash Liquidity vs. Hard Assets
Cash vs. Crypto 
Paper Losses vs. Capital Preservation 
Real Estate
Gold
 
And here is more information on each topic
 
Cash Liquidity vs. Hard Assets
Hard assets, particularly hard assets that produce income or save money in our budgets, are a way to retain wealth – particularly if they are located in a country with an outstanding history of property rights, such as the United States. In a recession, the actual value of the holding could go down. The value of single-family homes dropped -25% in the U.S. during the Great Recession – much more in the areas that had soared to speculative heights in 2006. However, if the benefit of the income (or the money we save on housing or other bills) remains the same, the hard asset can be very beneficial during challenging times.
 
There are quite a few things to get right in the equation, particularly at a time when single-family homes are at an all-time high and unaffordable, while malls and office buildings are experiencing fire sales or being given back to the bank. However, even if you believe that you are locked out of the housing market, there are creative solutions that can kick the door open.
 
This is one of the reasons why I’m hosting our annual Real Estate Masterclass on June 14, 2025. Housing affordability is a crisis, particularly for Millennials and Gen Z. On the other hand, a lot of Boomers are stuck in a homestead that may no longer be appropriate for them. Potential sellers are hanging onto their homes because of the low interest rate on their mortgage – understanding that with mortgage rates double what they were five years ago, they would spend a lot more for less. The solution can be found in the family (or a chosen family) coming together to make solid decisions that benefit everybody involved. Boomers are holding most of the wealth in the U.S., and many have relatives (heirs) in the younger generation. It’s time to come together for the benefit of multiple generations.
 
It's important to remember that being property rich and cash poor makes us very vulnerable. There are always property taxes, maintenance costs, insurance premiums, legal fees and more that seem to be ever increasing. If we don’t have the liquidity to cover these expenses, we put ownership of the property at risk. So, liquidity is very important as well.
 
Cash vs. Crypto 
The U.S. dollar has declined against other currencies. However, it’s nothing compared to the plunges that we see in cryptocurrency. In Crypto Winters, we’ve seen Bitcoin dive from $69,000 (Nov. 9, 2021) to a low of $15,000 a year later.
 
The truth about cryptocurrency is that it’s not used as a currency. It’s a trading platform where Main Street hopefuls try their hand against whales and hedge funds to get rich quickly. You can’t have a currency that is worth $69,000 one week and only 20% of that a year later. Imagine if your dollar was only worth 20 cents.
 
Volatility takes crypto out of the realm of a constant currency, which is why we aren’t seeing the digital asset showing up in central banks and government reserves. However, that doesn’t mean that we can’t have cryptocurrency in our portfolio – provided we have a plan to ride the waves to the right side of the trade. For that reason, we put crypto as one (or more) of our hot slice investments on the at-risk side of our portfolio, rather than the safe side (where cash products that preserve our wealth are). In a more normal world where debt isn’t astronomical, bonds could provide a role in preserving our wealth with reduced risk. However, we’re seeing a lot of conservative investors with significant paper losses in their portfolio that are a lot more problematic than they are being told.
 
Paper Losses vs. Capital Preservation 
The bonds that are suffering from paper losses are the least creditworthy with the longest duration. At our Financial Freedom Retreats, we have been warning retreat attendees about credit and duration risk since the Great Recession. The people who are abiding by our strategies are not suffering from paper losses. It’s easy to earn 4.0-4.4% interest with low risk, if you know where to look. (We spend one full day educating our attendees on safe investments at the Financial Freedom Retreat. Email [email protected] to learn more now.)
 
I hear people trying to justify the strategy that has put them in a bind, saying, “Well, as long as I don’t sell it, I won’t realize the paper losses.” Many of the worst losses are concentrated in issuances of low credit quality (risk of illiquidity, losses and restructuring) and long duration (will you still be alive in 55 or 85 years?). I’ve seen durations as long as 100 years! The minute you own the junk bond, not only does it lose value with an increased risk that the losses are permanent, the liquidity dries up.
 
See the liquidity chart below, and you’ll notice that this also holds true for heavily indebted, fixed income equities, many of which are concentrated in the Dow Jones Industrial Average. When we have a loss on paper, our FICO score plunges, as does our wealth.
 

So why are we being put into these risky long-term commitments? Often those are the ones that pay the highest commission to a broker-salesman. It may also be that the investment bank owned by the same conglomerate as the brokerage has taken on a new client and needs to sell the bonds. Additionally, we are seeing private equity deals that are very risky where qualified investors are committed without truly understanding that their money may be invested in junk bonds, and that they may not have access to their money for years. (Annuities take up to 9% of your investment the minute you purchase them.) The minute we purchase many of these “fixed income” investments, it loses value and becomes illiquid. 
 
Capital preservation is important for so many things (in other words, no paper losses). It keeps our wealth intact. A higher FICO score = borrowing at lower interest rates. Liquidity means the funds are available for more attractive investments. Most people don’t buy low because they can’t. If we lose too much, or if we’re hanging on for years hoping we’ll get all our money back at the term end, then we just don’t have the resources to buy low. In the worst-case scenario, we might need it to stay afloat and pay some bills – which means we’ll have to sell and realize the loss.
 
Real Estate
Homeowners are worth 10 to 40 times as much as renters – 10 times as much according to the mean, and 40 times as much according to the median. Real estate is a great way to preserve family wealth, provided it is paid off or pays for itself in a steady, secure way. However, prices are at an all-time high. People under 44 are having trouble qualifying for a loan.
 
Buying high is rarely a good idea. However, there are opportunities, as I mentioned above, for families to come together with a plan that works well for everyone. I outline a 10-point checklist for homebuyers and sellers in The ABCs of Money 6th edition. There is an entire section on real estate that includes case studies that you will be informed and inspired by. I also strongly encourage you to join us at our Real Estate Masterclass on June 14, 2025. A small investment of time and money could pay off for life. Email [email protected] to learn more and register now.

Gold
Gold is pretty liquid, as you can see in the liquidity chart above. However, it suffers from the same kind of volatility that cryptocurrency does. I hear people say that gold never loses its value, but that is simply untrue. From the highs in 2011, this precious metal lost 40% of its value and didn’t recover until the pandemic (2020). If you purchased gold at the top in 1980 it took a quarter of a century to crawl back to even.
 
If we’re in the Apocalypse, you could probably trade food or Wi-Fi more easily than a gold nugget. Like crypto, we consider goal to be a hot slice of our at-risk investments. That way when it shoots the moon, you can capture gains. And when it sinks, you can buy more at a lower price. Email [email protected] if you’d like to see which countries hold the most gold. You can also learn more in my blog, “Gold and Crypto IRAs.”



Bottom Line
The world is trending to greater nationalism, and BRICS is proof of that. However, the BRICS nations will have to become more trustworthy and economically free to give the U.S. dollar a true run for the money on the global reserve currency stage. Having said that, it is clear that with the rising debt, persistent budget deficits and a potential struggle with stagflation and painful interest payments on the high debt, central banks and governments are hedging their U.S. dollar bets with a basket of currencies. Selling the farm and investing it in a speculative currency that will replace the dollar could be an expensive lesson. Finding a way to keep money and hard assets in the family, including the farm and real estate, could be a great way to retain wealth.
 
Today’s volatile, more nationalized world requires much more than just a simple analysis of whether you should buy or sell more stocks and bonds. A complete examination of exactly what you own, what role it serves in your wealth plan, how you plan to keep that wealth and how much risk you are really taking on is key. Now. Who has control of your dough and for how long matters more than ever.


 
Join us at our online Financial Freedom Retreat June 6-8 2025 where you'll learn how to protect your wealth, save thousands annually in your budget and how to hedge in a volatile Debt World. The following Saturday on June 14, 2025, at our Real Estate Master Class. you'll discover the 10-point checklist for home buyers and sellers, as well as some overlooked areas of opportunity. If you'd like a life-changing adventure of a lifetime, be our guest at a royal manor house in Cornwall, England, March 12-19, 2027. (With just eight rooms available, this exclusive, private, bucket-list adventure sells out a year in advance!) Call 310-430-2397 or email [email protected] to learn more. The 2025 Restormel Retreat was a magical and royal experience. Click to learn more. 

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* Avoid capital gains and financial predators,
* Keep an age-appropriate amount safe, and,
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Visit NataliePace.com to learn more. Call 310-430-2397 or email [email protected] for pricing, additional information and to register. Early Bird pricing ends May 15, 2025.

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Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money (6th edition) and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is (2nd edition) are the most recent releases of these books. Follow her on Instagram. 
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Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.​​

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly-traded companies, funds or projects mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect an age-appropriate, diversified wealth plan, which has been designed strategically, with the assistance of financial professionals who are familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge, patience and diversified strategy.  
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Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.