Why the U.S. Dollar Is So Powerful / Globalized Currency ?
The power of the U.S. dollar depends on its use as a global currency. Here are main reasons behind the power of the dollar. They explain why no other currency will quickly replace it?
The Dollar Is a Global Currency
After World War II, the world’s developed countries created a plan in Bretton Woods, New Hampshire. They fixed the rate of exchange for all foreign currencies to the U.S. dollar. The Bretton Woods agreement promised that the United States would redeem any dollar for its value in gold. By the early 1970s, countries began demanding gold for their dollars to curb inflation. Rather than allow investors to deplete Fort Knox of all its gold reserves, President Nixon untied the dollar from gold. By that time, the dollar had become the world’s dominant reserve currency.
The Dollar Is the New Gold Standard
In essence, the dollar is like the gold standard. Most global contracts, especially those for oil, are denominated in dollars. Many large economies, such as China, Hong Kong, Malaysia and Singapore, peg their currency to the dollar. When the dollar weakens, so do the profits of their exporters. These countries also hold large deposits of U.S. Treasury. In theory, they could sell their holdings and cause a dollar collapse. But that’s not in their best interest.
The Dollar Has Always Recovered from Prior Declines
The dollar declined during the 1970s, the early 80’s and from 1991 to 1993. During these declines, there were also forecasts of a dollar collapse. Many countries considered removing their currencies’ pegs from the dollar. But there was no real substitute for the dollar as a global currency, so a collapse did not happen.
The Dollar – The Reserve Currency
A reserve currency (or anchor currency) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves. The reserve currency is commonly used in international transactions, international investments and all aspects of the global economy.
It is often considered a hard currency or safe-haven currency. People who live in a country that issues a reserve currency can purchase imports and borrow across borders more cheaply than people in other nations because they do not need to exchange their currency to do so. By the end of the 20th century, the United States dollar was considered the world’s most dominant reserve currency. The world’s need for dollars has allowed the United States government as well as Americans to borrow at lower costs, granting them an advantage in excess of $100 billion per yea
The Dollar (USD) Politically Stable
AMERICA’S Democratic and Republic has lasted for two government, turbulent, productive centuries. Both two government are very stable and corruption-less government thus its bring their country economic will be stable growth.
The Dollar (USD) Largest Military base and supplier
The United States is the largest operator of military bases abroad, with 38 “named bases” having active-duty, National Guard, reserve, or civilian personnel as of September 30, 2014. It’s largest, in terms of personnel. The Pentagon stated in 2013 that there are “around” 5,000 bases total, with “around” 600 of them overseas and World’s largest arms exporters.
Other Similar Topics You may Interested in !