The Independent Market Observer

The Dollar, Digital Currency, and the Fed: Look Beyond the Headlines

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Apr 13, 2023 3:12:05 PM

and tagged Commentary

Leave a comment

beyond the headlinesFollowing up on Tuesday’s discussion of why the dollar isn’t collapsing and will not do so, let’s take a look at some of the other panic memes showing up in our news feeds. This will be a range of quick hits, as there are a bunch to cover.

Banking Collapse

The collapse of the banking system (this one is a bit dated, say by a week or two), but you will notice that we haven’t seen any more bank failures in the headlines. As I said at the time, the government took the necessary steps to contain the problem, and here we are with no headlines. This one is a good lesson for the rest of the list here.


Per my previous post, the data shows de-dollarization simply isn’t happening. The dollar remains reasonably strong, countries continue to want to sell to the U.S., and in almost all cases there really isn’t an alternative. This argument also applies to the petrodollar headlines. It’s something that comes up every couple of years (check the blog archives), but it wasn’t true then and it isn’t true now.

The Fed’s Negative Cash Flow

This is a new one and a follow-up on the banking crisis (which, as noted, isn’t one) and poses the question, can the Fed go bankrupt? The answer is no. Per my friend and colleague Sam Millette: “The Fed was not created to generate profits . . . and this has never been a requirement. The central bank operates to promote maximum employment and stable prices. While historically it has been able to generate profits that have been remitted to the Treasury . . . this is not a requirement or even a formal goal for the Fed. The Fed is not a commercial bank that can suffer from depositor runs, and there is no risk of default.” 

Beyond noting that it is hard to go bankrupt when you can create money, which the Fed can do, I couldn’t say it any better. 

Official Digital Currency

Speaking of creating money, the Fed is now exploring the notion of an official digital currency. The scare headlines are that this currency will replace the dollar and enable the government to surveil and/or confiscate people’s savings. Indeed, the Fed is looking at this, but not in any kind of immediate way. If the Fed does pursue it, it will not make much of a difference, as most money is now essentially digital anyway. When was the last time you paid your mortgage with cash? Do you use a debit card? Nothing will happen in the short to medium term. If and when it does? It won’t make any more of a difference than switching from cash to credit/debit cards did. As for confiscation, the system will be no more vulnerable to that than it is now—and that won’t happen either. You may remember the great 401(k) confiscation scare of a couple of years ago, which never happened. 

A Common Theme

Of course, the common theme is that when you look at what is actually happening, the headlines take a real fact or trend and then exaggerate and distort it to scare people. Often, when you look back, you see this happening over and over again, every couple of years. These people are trying to sell something, not inform. When you keep that in mind, it is easier to let these headlines pass you by. 

Are there things to worry about? Certainly, and we talk about them regularly. But they are generally large scale and slow. The good thing about them is that we can track the data and see when we are getting into trouble. And as a result, we usually can avoid it. Not always, of course, but the second piece of that is that there are tools available, like in the recent banking “crisis,” that can help limit or solve the problem. There is almost never something worth panicking about. That is the real answer to these and similar headlines. 

Keep calm and carry on.

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®