The U.S. dollar is an international trading currency. It is used for trade in the United States and almost all over the world. It is one of the currencies that are a universal monetary medium. Apart from the U.S. dollar, we can talk about the euro and the yen.
The value of the U.S. dollar in the world
U.S. economic strength has supported its currency value. The financial growth of this country has made the U.S. currency the most powerful in the world thanks to the zoom on the dollar. This is due to its gold reserves which are exponentially higher compared to other countries. The amount of money in circulation worldwide is estimated to be around $600 billion outside the United States alone. It is estimated that 65% of dollar bills are used outside the United States compared to 35% used inside. This volume of money circulating around the world shows that the dollar is a global trading currency.
Since 1970, many countries began to exchange the dollar for gold. This is the only way for them to fight widespread inflation. It is thanks to this that the value of the dollar is stagnating and remains as a reserve currency in the world.
The countries that use the dollar currency have a strong economic power. This includes countries that have integrated the US dollar as a national and international currency. More than 80 countries keep their currencies in reference to the dollar.
The U.S. dollar: an excellent global trading currency
On the foreign exchange market, the US dollar is significantly higher even against the euro. The latter may have a higher value in the currency exchange market, but the dollar remains the master in terms of monetary value. According to economists, more than 70% of imports and exports are made through the US dollar. After that, the U.S. dollar is one of the 185 currencies in the world in the ranking of international standards organizations. However, the majority of these currencies are used only in their own countries. Theoretically, the dollar is considered a world currency. In this case, it is an excellent currency of exchange.
Because of the importance of the U.S. dollar, this currency has become very much sought after by banks around the world to conduct their financial activities. This includes, for example, the financing of an export, a foreign investment or an investment. Banks in Germany, France, Japan and the United Kingdom stored more dollar notes than their own currency in 2017. This is the main cause of the financial crisis. Dollars have become scarce on the market. In addition, the Federal Reserve raised the federal funds rate. As a result, this reduces the money supply. This makes the dollar more important. As a result, this currency is more expensive, more difficult to obtain and more difficult to borrow. This kind of situation has caused a global financial crisis.
Evolution of the dollar against the euro and other currencies
The U.S. dollar is the most popular currency among reserve and exchange currencies. As of 2018, it accounts for nearly 60% of all foreign exchange reserves known to central banks around the world. The dollar is therefore the de facto world currency even if officially it is not. It completely outperforms the euro. The latter is the closest reserve currency to the dollar. It accounts for about 20% of the foreign exchange reserves known to the central bank worldwide. Reserves were denominated in euros in the third quarter of 2018. The likelihood of the euro becoming a global currency increases with the disappearance of the crisis in the euro area. However, the crisis has highlighted the difficulties of using the euro as a global currency.
Other countries’ initiatives to counter the supremacy of the dollar
To counter the supremacy of the U.S. dollar, China and Russia have suggested the creation of a new world currency. In 2009, these two countries wanted to replace the dollar as a reserve currency that was disconnected from the nations and could remain stable in the long term. They want to create a currency that eliminates the shortcomings inherent in the use of credit-based national currencies. However, this project has failed in the face of monetary pressures that are already in circulation around the world. Both countries fear that the dollar will be devalued because of inflation. While they have a large amount of dollars in their reserves, they are wary of the future value of the dollar. In the event of inflation, the volume of dollars they own is worthless and could have an impact on their economies. The demand from China and Russia is unthinkable and impossible to achieve at the moment.