Alfonso Peccatiello: De-Dollarization Facts vs. Fiction, Gold's Role in New System

De-dollarization is making headlines, but will it ever actually happen?

Speaking to the Investing News Network, Alfonso Peccatiello, founder of the Macro Compass, explained why he believes de-dollarization will eventually occur, but not in an organized manner.

"The thing I want to fight the most back against is this idea that we can have an orderly de-dollarization — that's a fairy tale, it can't happen," he said. For one thing, the Treasury market doesn't have a competitor when it comes to the ability to provide a deep, liquid venue for countries to recycle their currencies. For another, the dollar plays a massive role in the debt market.

"I don't think an orderly move from a dollar-based system to another currency or a (system based on a basket of currencies) can be an orderly one," Peccatiello explained. "Generally in history such transitions between global reserve currencies have been with big geopolitical tensions — or in other words, with wars. So nobody wants that, but it is historically speaking the prerequisite to move from one currency-based system — the dollar — to another currency-based system."

However, in the past there have also been transitions between currency-based systems and gold-based systems. These transitions have happened differently, and Peccatiello shared why he thinks that's the case.

Notably, he said that in a gold-based system the growth of debt and credit are pinned to a hard asset.

"You can always exchange newly created dollars or newly created fiat currency for gold at a fixed price. What that does is it limits the ability to expand our credit, our debt, our leverage infinitely because you know that the more fiat money you create, the more the risk it is that people are going to lose confidence in that system because they expect the peg not to hold anymore."

Gold has already served that role because it sits on the balance sheets of central banks. "I think gold can and should play quite an important role in the transition from a dollar-based system to another system," he said.

When asked what would happen to the price of gold in that scenario, Peccatiello said it's hard to put a number on it.

"Of course the price would move up pretty materially. (But) the way I think about the role of gold in a portfolio is you don't know when and if this transition is going to happen," he said during the conversation.

"When and if it happens, you want to have some gold in your portfolio to protect your wealth in that environment. You don't need to become rich because of that, but you need to have gold in your portfolio as a contingency towards that transition."

Watch the interview above for more of Peccatiello's thoughts on de-dollarization and gold.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.