How the dollar became the world’s reserve currency

World War II changed almost everything in the world. Or in short, we can also say that after the Second World War the world changed in a way that it had not changed for many years.

Thus, World War II also reshaped the global financial system. As World War II drew to a close, world leaders began thinking about a stable financial system for international transactions.

For all the latest news, follow the Daily Star’s Google News channel.

Because the global trade gold standard at the time was heavily affected by the severe fallout of the Great Depression of 1930.

World leaders were struggling to find a good solution to volatile global trade.

After more than a decade of the Great Depression, in 1944 more than 700 representatives from 44 countries gathered at a meeting in Bretton Woods, New Hampshire from the United States to fix the US dollar as the medium of exchange for all currencies, like at that time. when America had the largest gold reserve.

Government officials who attended the rally at Bretton Woods promised to redeem their currencies for their value in gold upon demand.

This agreement allowed other countries to back their currencies with dollars rather than gold. This is the start of the US dollar’s journey to become the world’s primary convertible currency and the world’s reserve currency.

The United States has pegged the value of the dollar to gold at $35 per ounce.

Other countries then pegged their exchange rates in line with the dollar, making it the central mode of exchange in the system, according to NPR, an independent nonprofit media organization.

However, as the United States began running up huge deficits and depleting its gold reserves in the 1960s, the government found it too costly to keep its promise.

And so, in 1971, President Nixon arranged a divorce between the dollar and gold.

The value of the dollar is now determined by a hodgepodge of political and economic forces, from central bank decisions to frantic buying and selling by traders around the world.

The original arrangement established at Bretton Woods is long dead, but the dollar still remains the international reserve currency.

The dominance of the US dollar can be achieved if some data on global finance is analyzed.

The financial magazine The Economist in 2015 said that the United States accounts for 23% of global GDP and 12% of merchandise trade.

Yet around 60% of the world’s output, and a similar share of the planet’s population, is in a de facto dollar zone, in which currencies are pegged to the dollar or move in some way with it.

In 2020, the United States had $2.04 trillion in circulation. It is estimated that almost half of this value is in circulation abroad, according to The Balance, an online newspaper.

In the foreign exchange market, the dollar rules. About 90% of forex trades involve the US dollar.

The dollar is just one of 185 world currencies as listed by the International Organization for Standardization, but most of these currencies are used only within their own country, The Balance said.

Nearly 40% of global debt is denominated in dollars. As a result, foreign banks need a lot of dollars to do business.

The Economist said one of the quirks of globalization is that while America’s trade footprint has shrunk, its monetary footprint has not. When the Fed changes course, trillions of dollars follow it around the world.

With the rise of certain economies, Japan, Switzerland, the European Union, China, and Russia have all tried several times to introduce their own currency as a reserve currency, but have failed.

Economists, businesses, traders, political leaders and pundits said that most people around the world still trust and believe in the US Treasury system and the US Federal Reserve for its global standard of ethics and its smart dollar and financial system management.

As a result, many rising currencies could not be converted into reserve currencies for other countries despite several attempts.

In March 2009, China and Russia called for a new global currency. China wanted its currency to be fully traded in global foreign exchange markets.

In 1995, the Japanese yen and Deutsche Mark attempted to replace the world’s reserve currency as the value of both currencies rose.

Previous Cera raises £260m for major home healthcare expansion
Next The interbank foreign exchange market 2022 is booming in the world