Authored by Daniel Lacalle,

Despite the consensus narrative, what we are currently experiencing globally is not "de?dollarization," but a broad loss of confidence in developed economies' fiat currencies and sovereign debt as a reserve asset for central banks and institutions. This fundamental loss of confidence in the solvency of developed economies' sovereign issuers is boosting demand for gold.

However, the latest data shows no crossover or fiat alternative substitution. The US dollar's central role in the fiat system remains intact.

Gold over debt: the key shift

MMT supporters state that monetary sovereign nations can issue all the debt they want without inflationary and confidence risk. However, monetary sovereignty is not a given; it is not perennial and governments face three limitations when it comes to issuing debt. Domestic and global confidence in sovereign issuers begins to decline once they surpass those limits.

The three limits for governments are:

1. the economic limit, when more government debt leads to stagnation and productivity growth decline;

2. the fiscal limit, when interest expenses and debt burdens soar despite central bank easing and rising tax receipts;

3. and the inflationary limit, when the loss of the purchasing power of currencies becomes large and persistent, eroding citizens' standards of living.

Over the last few years, the most important trend in global reserves has been the rotation from government bonds of advanced economies toward gold, not "out of dollars," as some media highlights, and even less so into other fiat currencies.