How the U.S. Dollar Became the World’s Reserve Currency

The Dollar Currency

The dollar is the only currency that is widely used across the world for various transactions for national as well as international trading. It is the most common reserve currency and was widely used by the people after world war ll replacing the pound sterling which was widely used by the people prior the world war ll.

The dollar is the only currency that is widely used across the world for various transactions for national as well as international trading.

The United States dollar is the currency of the united states and its territories. It acts as a Treasury for the foreign exchange in all the economies which is approximately 60% of the total foreign exchange. It facilities international trade as many countries whose currency is not acceptable by any other country use the dollar currency as a medium of exchange.

Many countries hold reserves in currency with vast and open financial markets, to make sure that the reserves can be utilized at any point in time in case of emergency.

The International Monetary Fund (IMF) regulates and monitors the International Monetary system which acknowledges eight currencies which are – 

  • Australian dollar
  • British pound sterling
  • Canadian dollar 
  • Chinese renminbi 
  • Japanese yen
  • Euro
  • Swiss franc
  • US dollar

The US dollar is the most used currency and has a rich history regarding its invention. It was introduced at par with Spanish – the American silver dollar under the Coinage Act of 1792. A dollar constitutes 100 cents. The U.S banknotes are issued as Federal Reserve Notes which are popularly known as greenbacks because it is green in color.

It is represented by the symbol of $ and is also abbreviated as US$. The sign was evolved by the 18th century in place of the abbreviation p^s for the peso.

The Federal Reserve System was created in 1913 and constitutes the central bank of the United States. The main motive of the federation is to conduct monetary policy of the nation thereby promoting maximum employment and stable prices.

This enables stability in the entire nation and acts as a lender of last resort. For more information regarding the central banks, you can check my blog.

The action stimulated by the central bank to determine the growth rate of the money supply available in the economy is known as monetary policy. It yields low inflation, low unemployment, and a stable financial system.

 There has always been a debate over the topic of whether the central bank should target zero inflation which means the equal value of the US dollar every time or a slowly declining value of the US dollar.

Various economist has served their opinion on this subject. Therefore it is the central bank that would decide on the subject matter and acknowledge the need of the nation.

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