What is the Importance of US Dollar?


Today, the world is practising foreign trade in exchange for dollars. it is a reserve currency. After the Second World War, according to Bretton Woods plan, countries agreed upon a fixed rate of exchange for all currencies to the US dollar. US dollar is also the new gold standard. The global contracts, especially which takes place for Oil are denominated in terms of dollars. This is because oil contracts are priced in dollars.  Giant economies like China, Hong Kong, Singapore and Malaysia peg their currencies to the dollar. With the declining value of the dollar, the profits of their exports also go down. Large deposits of the dollar are also held by these countries.

Importance of the US Dollar

Additionally, history is evident that dollar value can recover from the worst declines so much easier as compared to other currencies. For instance, during the declines of the 1970s, the early 80s, and from 1991-1993, many countries decided that they would remove their currency pegs from the dollar but eventually, it was seen that there is no other option except dollar because the dollar is a global currency.

The value of the dollar can clearly be analyzed through the above reasons and many argue that currencies like Euro can replace the US dollar but it will take time. It can happen but slowly and gradually.

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