Should the recent redesign of our beloved $10 bills from a plush, spring green to a medley of shades ranging from orange, yellow and red be viewed as some sort ominous sign of things to come?

The U.S. denomination bearing both Alexander Hamilton and the United States Treasury happens to be the first indoctrinated with this autumn hue.

Are the powers-that-be playing some sort of sick joke?

Meaning, can the crux of the dollar’s precipitous slide be attributed to the note’s mysterious color shift from green to red?

The dollar has tumbled more than 23% since 2002, according to JPMorgan’s trade-weighted exchange rates. And that’s a significant fall (no pun intended) considering Asian central banks keep buying most everything we print.

The Euro appreciated more than 11% against the greenback in 2006 alone.

Our boys at the Treasury claim these color changes impart important security features.

Should we have seen this coming?

Our national currency used to operate on the gold standard. Meaning, the paper money in circulation remained directly linked to fixed amount of stored gold. To produce more paper money required nations to mine (or acquire) more gold. This standard created long-term stability and thwarted inflation.

But the gold standard had one minor flaw: It prevented governments from creating money out of thin air.

And when governments needed money to wage wars and stimulate economies, it naturally became easier to print paper than to mine gold.

The transformation from the gold standard to fiat money occurred within the premises of the West’s obligation to finance the First World War.

By 1933, Franklin Roosevelt revoked America’s direct monetary link to gold altogether. He opted for a fiat currency.

Fiat Money is a currency (like the United States dollar) that isn’t backed by any tangible asset like gold or silver, or even bushels of corn for that matter. It’s a currency that derives its entire worth on nothing more than a promise. It’s a promise by the Federal Government.

The covenant states that paper money is backed by the full faith of the United States government. I’m not really sure what that means exactly. I’m not sure how to quantify or redeem “full faith.”

As American lawyer, lecturer and author, Rene A. Wormser noted in his book Conservatively Speaking: “Before 1933 our Federal Reserve notes contained the promise they could be converted into gold. Later that caption was changed to read that a bill could be exchanged for ‘lawful money’ of the United States ‘except more of the same.’ When finally, someone recognized the absurdity of this legend, it was dropped and our bills now contain merely the comforting legend: ‘In God We Trust.’”

The subtle devaluation of a nation’s universal currency has significant historical precedent.

The Roman’s adopted a national currency. It consisted of coins including the aureus (gold), the denarius (silver), the sestertius (bronze), the dupondius (bronze) and the as (copper).

The only drawback: Romans spent more than they could make. Sound familiar? Do you know any other governments proficient in this practice?

To fuel expansion, the Romans needed money. But silver and gold mining couldn’t keep pace with need to mint more coins. The Romans had a short-term solution. Dilute the value of money! Déjà vu?

The Romans decreased a coin’s intrinsic value: The percentage of precious metal in the coin itself. Before long, silver coins were anything but silver. With the strength of the coin went the strength of the Empire.

Currencies rise and fall like alongside the empires that create them. The U.S. dollar certainly isn’t immune to this phenomenon. Compared to its value in 1913, a dollar today is only worth five cents.

The more I read about currencies, the more it makes sense to invest in companies that derive a majority of their revenues from countries whose currencies are stable or on the rise. Places like China, Canada, Hong Kong, Singapore…or even New Zealand.

Large-cap or small-cap, it doesn’t matter. Companies earning revenues in foreign currencies offer the investor a fantastic way of neutralizing the side effects of a U.S. dollar destined for extinction.

We’ll leave it at that.

Until Next Time,
Christopher Hancock
March 2, 2007

P.S.: If you want to find out how you can profit from the U.S. dollar’s status as an endangered species, be sure to read Addison Wiggin’s bestselling book The Demise of the Dollar.

Christopher Hancock

Christopher Hancock lives and breathes emerging markets. He travels extensively and utilizes his contacts across the globe to recommend the best international investments in the world. After working with Citigroup in Hong Kong on the challenges and opportunities associated with the forthcoming RBM flotation reform, Christopher left many of his friends behind and decided to return to the States to pursue a career in equity research. Special Report: Imagine Getting Rich as Ignored Stocks Soar- How you could turn $200 into $1.2 million!

View articles by Christopher Hancock