Published May 2, 2022
2 mins read
402 words
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Why Us Dollar Is A Global Currency??

Published May 2, 2022
2 mins read
402 words

To understand how dollar achieved the status of “ global currency”  we need to go back to history. The  dollars global status was cemented in 1944 when government representatives from around the world met in Bretton Woods in New Hampshire. There they decided to make dollar a reserve currency , loosely pegged or fixed to the value of gold. They needed something stable in international transactions and investments. After World War 2 , the currencies of European countries lost its charm and eventually collapsed. They saw dollar had qualities and qualified dollar as the new global monetary system in order to encourage international trade after World War 2.

Back then credibility and desirability of a currency depended on how much gold the currencies issuing country had and at that time US had almost 80% of the world's supply of gold reserves, granting US dollar the status of most credible currency in the world. Therefore this credibility made other countries to decide to set their countries currencies at a fixed exchange rate with the US dollars. Since all major currencies were fixed to the dollar,the dollar eventually became the normal way of settling international payments . The dollar became the international medium of exchange and was also known as the Bretton Woods System.

Issuing the currency that was most used by the world gave the US what the French minister of Finance called" exorbitant privilege".By 1966, foreign banks held about dollar  14 billion worth of US dollars, but the US only had dollar 13.2 in actual gold reserves and this caused global concern.  Thus the French President challenged the US dollars position in the international economy. By 1970's Bretton Woods System fall apart,when the US announced that the dollars could no longer be used as exchange medium for gold.As a result the other countries started viewing the dollar with uncertainty as it experienced high inflation.

But by 1980's the United States Central Bank,the federal reserve got inflation under control, and regained people's confidence and trust in dollar back. US Dollar is still the main medium for transactions and purchase of crude oil from Arab countries. IMF and world bank also provide monetary assistance and loans in dollars. International reserves are also judged on the basis of dollar amount. Though still dollar is viewed as global currency but it faces serious threats from China's yuan and euro.

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lokeshbhandari821 5/2/22, 2:07 PM
1
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1
sheetal.thakur 5/3/22, 3:16 AM
Nice
arfa 5/24/23, 8:22 AM
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