In this write-up, we will share the reasons why the US dollar remains popular throughout the world. The dollar is considered the king because the dollar is the priority choice for international trading. Most countries like Saudi Arabia are riveting their country currencies to the dollar.
The importance of the dollar is due to its value in the international market and due to the large-scale economy of the US. “It’s more helpful to think of U.S. Treasuries as the world’s leading reserve asset,” says CFR’s Brad W. Setser. “It’s hard to compete with the dollar if you don’t have a market analogous to the Treasury market.”
The dollar has significant value throughout the world. Stick with us till the end if you want to have complete detail about the dollar’s importance and its popularity.
United States Dollar:
We will share all details about the US dollar and why the us dollar remains popular. The dollar is the official money of the United States. US dollar is the circulating coin in the world. The dollar was introduced in the act of coinage act of 1972. Do most people have a query Why does the US dollar keep getting stronger? The dollar is stronger because most enterprises want to trade with the dollar. They think that dollar is the safer and more stable currency.
Why dollar is used as international currency?
Us dollar has become the global reserve currency after World War 2 at the Bretton Woods conference in 1944. At this conference, 44 countries concurred on the formation of IMF and the world bank. At this conference, a new system was introduced which is called the exchange rate in which every country secures the value of its currency to the dollar. This new system was introduced to facilitate stability.
However, in 1960 the United States was not able to circulate the dollar outside the US because the US do not have enough gold.
In August 1971, President Richard Nixon hang on to the dollar’s convertibility to gold. He ended up with the idea of Bretton woods exchange rate system. In the Bretton wood conference, it was suggested the dollar can be exchanged with gold. However, many systems were introduced in the history of the US dollar, some failed and some make the dollar an international choice.
What are the benefits of the dollar to the United States?
In 1960, the dollar became the leading secure currency which is why it is called the “exorbitant privilege” of the United States. This phrase was stamped by Valery Giscard d’Estaing the 1960s who was a finance minister. The dollar has important in the international market at that time because every country want has an appetite for the dollar to make its country safe and secure.” Bernanke wrote in 2016 that “The exorbitant privilege is not so exorbitant anymore,”
But the dollar’s importance is still at its peak as US dollar has become a global payment. All the traders in US and also from other countries want to deal with US dollar currency.
Setser says that “There’s no doubt that if the dollar were not so widely used, the reach of sanctions would be reduced,” after the administration of Donald trump, most countries started introducing a new dollar-free system like France, Germany, and all developing countries alliance to reduce the dollar use in their trade’s. Especially China and Russia reduced the dollar in their trading.
Alternatives to Dollar:
After the covid-19 pandemic period, the dollar value has gone to downfall as a leading reserve currency. As in the 2008 financial crisis, predict that dollar may be lost its value in the international market.
Barry Eichen Green wrote in his book Exorbitant Privilege, that it is a testimony to both the advantages the dollar enjoys as the leading reserve currency and the lack of credible alternatives.
So, many countries wanted to have Dollar alternatives. Some of the Dollar alternatives we have listed below:
Euro is the best alternative to the dollar as it is the second reserve currency in the global foreign exchange. Euro is an easier and safer option for traders to buy and sell within its country and even outside the country. It has played a major role in improving currency stability.
The Renminbi is the other alternative to the dollar and it is a China currency. Which is also known as the yuan. Yuan is considered to use for international trading. China wants to increase its trade with other countries through the yuan. Yuan can replace the dollar in the market may be in the future.
- Special Drawing Rights (SDR)
John Maynard Keynes proposed the formation of an international currency that is called Bancor. And this currency will be administrated by the central bank. But his proposal was not accepted. The importance of SDR is developed on five currencies like the euro, pound sterling, renminbi, U.S. dollar, and yuan.
The concept of using SDR was supported by the governor of China’s central bank, Zhou Xiaochuan, in 2009. Economists including Joseph Stiglitz.
Cryptocurrencies can replace the dollar in the international market for trading. Cryptocurrencies such as bitcoin tend to become the new powerful currency. Bitcoin is a digital currency that is mined and these currencies are exchanged through computers around the globe. The supporters of cryptocurrencies said that bitcoin is like gold, and it is better than printed currency or paper money. But in recent years, the cryptocurrency has reduced its value. However, still, some countries are working hard to make digital currencies more attractive to the world for trading.
It was a brief discussion on why the US dollar remains popular. We have shared all the reasons for its popularity and its alternatives with you. If you like our piece of information, let us know in the comment box below.