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A mood of uncertainty in the first half of 2023 brought the question of currencies into focus for many investors. With a U.S. recession predicted by some analysts, a debt crisis looming, and the rise of central bank digital currency, some worried about the role of the U.S. dollar on the world stage. And while not technically a currency anymore, gold once again appealed as a stable investment and a portfolio diversifier.

Let's take a closer look at these questions.

The term de-dollarization refers to the fear that the U.S. dollar's role might not be as strong as it once was. Is that true? Well, yes and no. It is true that the U.S. dollar's market share has slipped over the past few decades; however, it still accounts for roughly 60% of global currency reserves. Also, roughly half of all global trade is invoiced in USD, according to a 2022 publication from the Bank for International Settlements.

The USD's role in global trade, the complexities and costs related to moving away from the USD, and the lack of an immediate alternative combine to make it less likely we'd see a rapid replacement of the USD that would rattle financial markets.

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One of the most important functions of the U.S. central bank, the Federal Reserve, is to manage the nation's money supply. Central bank money – meaning, physical currency and commercial bank deposits held at the Fed – is the foundation of the nation's financial system and overall economy.

In January 2022, the Fed issued a long-awaited research paper detailing how central bank digital currency – or CBDC – might fit into our economy. We don't know if, or when, the Fed might introduce digital currency. But according to research from the Atlantic Council think tank, there are 87 countries (accounting for more than 90% of global Gross Domestic Product) now considering a CBDC. Central bank digital currency may be considered revolutionary from a technological innovation point of view and is a dramatic departure from our familiar green cash. But really, in terms of how it would impact your life on a practical level, the changes would be fairly seamless.

Ask yourself how often you use cash now. Do you pay bills online, transfer funds between accounts, shop online or use apps to make in-store purchases? Do you get your paycheck or Social Security payments via direct deposit? The fact is that a huge portion of our financial lives is conducted digitally now. The main difference is that most of these transactions are conducted with commercial bank money; the CBDC would be the Fed's currency that supports the nation's economic and interbanking system. As with the physical currency managed by the nation's central bank, digital dollars would be controlled by the Fed, not run on decentralized, distributed-ledger technology like crypto.

Would the Fed issuing a CBDC increase inflation? Not on its own. Inflation can sometimes (but not always) be created if the Fed creates money faster than the economy needs. However, the existence of CBDC doesn't mean that the Fed will create more money. It can already print too much money through existing means. It's kind of like worrying, if they brought back the $2 bill, would that increase the odds of inflation? No.

According to the International Monetary Fund, if deployed correctly, CBDCs can be more cost-efficient than physical currency, and can help promote accessibility and monitor fraudulent activity. They would provide more transparency than cryptocurrencies.

Dismissed only a matter of years ago, CBDCs could eventually be part of the future of a faster, more secure and efficient national banking system.

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Gold has a reputation as a stable investment, an inflation fighter and a solid way to diversify your portfolio against market volatility. Again, there's a lot of truth to this, but it's not as clear-cut as it seems.

If you're feeling uncertain about the markets and are worried about a recession, gold may seem to hold some appeal because it's uncorrelated to other asset classes, meaning that its price moves differently from what other investments might be doing. That's why some people might think that a bit of gold can be useful in a diversified portfolio. However, you have to realize that gold is not a long-term growth asset. There's no reason to believe that the price of gold should systematically rise over time, unlike the prices of bonds and stocks, which produce cash flows.

In order to be a useful part of a portfolio, an asset should have positive expected growth along with a reasonable risk - gold fails that test.

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That brings us to gold's reputation as an inflation buster. Because it's not a growth asset, the returns you get from investing in gold are not likely to consistently beat inflation. There are other asset classes that can offer better protection against inflation and more stability in their pricing.

The good news is that your diversified portfolio has exposure to a wide range of asset classes. And it has exposure to commodities like gold through the stocks of commodity producers, like metals and mining companies. So even if you don't own gold outright, your portfolio is still constructed in a way that can address a range of inflation scenarios, thanks to broad diversification.