Why international transactions are done using US currency?
Malini VK - Infobite 15-Apr-2021
US dollar is the world's most dominant Global reserve currency. What makes US dollar to gain this value?
- During the World war era, international trades were conducted using gold. However this became economically a disadvantage to most of the countries without gold.
- A common currency was needed by all the countries to make exports or imports.
- The 1944 Bretton Woods agreement gathered world's developed countries to exchange their currencies to the amount of gold it possess.
- US held the largest gold reserves at that time. So US dollar was made a common currency and all the countries fixed exchange rate for their currencies to US dollar.
- World nations started to use US dollar for international trade. This kick-started US dollar to become global currency.
- Almost 50% of the world's debts are issued in US dollars. Hence the world banks required lots of US dollars to run their business.
- The world's need for US dollar makes US to print more money than any other country which made this a dominant reserve currency.
- Around $580 billion in US dollars are used outside the country, mostly as hard currency in day-to-day- transactions.