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Analysis of the American Dollar as an International Currency

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The US dollar is America’s official currency and its currency code is USD, whereas its currency symbol is $ (Dunning). According to the global currency rankings, it was found that conversion of USD to EUR rate is the most popular United States exchange rate till present (Goldberg and Tille). Therefore, the US dollar is divided into smaller units of 100 cents. However, the US dollar can also consist of Federal Reserve Notes in denominations of 1000 mills, which is usually dominant in American currency (Eichengreen and Mehl).

Why US Dollar Used as a Global Currency

The US dollar is not only used as a global currency but as well as an exchange tool for currencies (Goldberg and Tille). This is because the US dollar is the most popular and the strongest currency trading up to 64% in the global forex reserves (S. Sumner). Additionally, the strength and stability of the American economy boosts the exchange rates of their currency making the US dollar the reserve currency, and thus most appropriate as an exchange tool for currencies as well as a global currency (Eichengreen and Mehl).

Furthermore, the US dollar has been used as a global currency, as well as used to exchange currencies for various historical reasons. For instance, the continuing influence of Bretton Woods agreement made near the end of the Second World War contributed largely to the use of the US dollar in the global forex market (W. G. Sumner). After the devastating effects of the global war, the United States’ economy remained relatively strong and stable compared to other significant nations in the world facilitating the selection of the US dollar as the global currency in the international financial markets. This took place in 1944 at the Bretton Woods Conference in New Hampshire, just before the end of the Second World War (S. Sumner).

Why do not use Canadian Dollar or Australian Dollar or any other Currencies better than US Dollar?

The primary reason as to why Canadian or Australian dollar or any other currencies are not used better than the US dollar is due to their relatively less strength and stability when compared to the US dollar (Goldberg and Tille). The US dollar is a powerful currency, and with the very base of its strength in the US economy, it’s not only used as a reserve currency but also a financial tool that transforms and consequently enhances the global markets into attractive destinations for foreign capital (Eichengreen and Mehl).

Additionally, the US dollar is the better currency due to the freeness of the US economy and convertibility of the currency (Eichengreen and Mehl). Unlike other foreign currencies, the financial system in the United States is open and thus the RMB can be traded in world’s foreign exchange markets. However, in the case of for instance China, the Chinese Yuan cannot be used as a reserve currency despite being backed by the world’s second-biggest economy (Goldberg and Tille). This is because the financial system in China and many other countries are not open as they are tightly controlled by their respective governments. Therefore, being among the freest currency and having a more open financial system makes the US dollar a better currency for global markets as opposed to the Canadian dollar or Australian dollar or any other currencies (Goldberg and Tille).

When the US Dollar used as a Trade?

Besides being America’s official currency, the US dollar is used as the standard unit of currency in the global financial market in buying and selling of various products such as gold and petroleum (Goldberg and Tille). However, the US dollar was used as a trade to help resolve the prospect of various inconvenient situations, hence need to introduce a common currency anyone would be ready to accept it in exchange for goods. Moreover, being the world’s foremost reserve currency, the US dollar enabled the United State to maintain its economy in respect to possibilities of deficits in trade without triggering depression with regards to the exchange rates of currency (Eichengreen and Mehl).

How International People Know About US Dollar?

The awareness and knowledge of the US dollar were brought to the attention of the international people over a few decades ago (S. Sumner). This is the time when the US dollar was used and accepted in various financial markets in global forex. Consequently, being used as a benchmark to derive the value of all other currencies. As a result, it was found that more than 75 percent of the world trade with regards to the US dollar boosted a very strong economy (Goldberg and Tille).

Subsequently, the dominance of the US dollar in global forex markets will always remain steady because of the United States’ strong economy (Dunning). Thus, investors and other international people believe that the economy of the United States is strong and stable, and hence will never fall as the country’s central banks reserves is protected and has an RBI $355 billion reserves, hence the US dollar is the most used currency for trading in the world market (Eichengreen and Mehl).

History of US Dollar

In order to fully understand the history of the US dollar, then it’s important to trace it back in over 240 years ago. Thus, the US dollar originated after the authorization of the continental congress of America to issue a common currency to be used throughout the continent and consequently a standard unit of money (W. G. Sumner). Nonetheless, the “dollar” was first used in 1518 at Joachimsthal city in Bavaria which would later be adopted by various European countries as a standard unit of money (Dunning).

Therefore, after various governments in Europe adopted the dollar, the American revolution of 1792 through the continental congress of the US adopted the US dollar as a standard unit of American currency (S. Sumner). Consequently, through the Coinage Act, the value of the US dollar was divided into various units of money of 1, ½, ¼, 1/10, and 1/20 dollars. Then the value of the currency will be used in trading commodities in financial markets. Nevertheless, the initial currency used in American territories did not have the faces of presidents. On the contrary, the present law of any countries upholds the idea that a portrait of the president may appear on the official currency of respective countries (S. Sumner).

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