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In order to try to answer the question lets define collapse. Currency collapse is the abrupt decline in the value of a currency caused by a loss of faith in its stability or in its utility as money—either as a way to store value or as a means of exchange.

The dollar has strengths. It is the most important reserve currency of the world and this gives it more legitimacy in the eyes of domestic and international users. Also, the US economy is the largest in the world. So as Americans keep using the dollar, it is backed by the productivity of the American worker

The dollar has also weaknesses. It may be created out of thin air, since it is not backed by gold or any other commodity. If the monetary policy becomes irresponsible, the dollar will suffer.

The dollar could collapse in a scenario of high inflation and high debt. Inflation can cause interest rates to increase. If foreign creditors decide to get rid of dollars because the US government has trouble paying the interest on the debt, the dollar could collapse. I believe it is important to keep a good relationship with the creditors and to manage monetary policy responsibly. Spending reduction and increased economic activity will make the temptation of printing more money more difficult.

###### This post is intended to only raise awareness. In order to make actual financial decisions please contact your financial advisor and/or tax advisor prior to making the decision.

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