Introduction
The dollar has been currently considered the global reserved money. In the modern world, the dollar has significant power throughout the world. But change happens for everything. This time, unfortunately, the dollar is on the verge of diminishing and losing power. The factors affecting and the reasons and what will happen are the things that will be discussed here.
The emergence of the dollar
From the 1760s, after the Spanish dollar, Great Britain’s pound was considered the powerful or the global reserve holding money. But after World War 2, due to economic decline and Great Britain losing powers from colonized countries, and due to the budget exceeding resulting because of costs borne for military purposes, the US dollar came into consideration and was considered as global reserve money. Why this global reserve money was considered a powerful thing is because of common acceptance throughout the world, where in a situation of goods requirement from one country to another, trade happened through dollars as it was commonly accepted money throughout the world. So this is why the dollar replaced Great Britain’s pound and became a global reserved money that was used as a medium of exchange throughout the world.
Common occurrence
In the 14th century, Rome’s currency was considered the global reserve currency as they were able to replicate and make silver coins whose major component was silver, and they had power over many parts of the world. So after Rome’s silver dollar, the Dutch came into power over a wide area throughout the world, so the Dutch currency came into power. After the 16th century, the Spanish dollar was considered the generally accepted medium of exchange throughout the world. It also diminished after 80 years of its reign. Then came the pound, which held reign for around 200 years. Great Britain, who reigned over many areas such as South Asia, North America, and many other areas from continent to continent, had the most powerful military base, and their currency was considered the most powerful currency and became the global reserved currency that was commonly accepted for trade. After 1944, World War 2 brought the dollar into power. The Great Britain downfall gave space for the dollar to emerge as the reserve currency. As I mentioned above, the US was the military giant while coming into reign.
The aftermath
Why they consider a reserve currency holding country powerful is because when one country sells goods for trade, they use your money. So if the US needs goods, it just needs to print money. That is the major advantage of becoming a global reserve currency. So after coming to reign, the pattern that continued for so long repeated as a déjà vu where the US started expanding their money. The US dollar was used as a currency for many countries in international trade. Even oil was measured in dollars when trading, so it gave the US superiority over others. The global reserve status was offered by the Bretton Woods system for the dollar. They introduced the Marshall Plan to rebuild European countries that were torn out due to war. This initiative resulted in building ties with European countries and also flooded dollars throughout the world.
After the collapse of the Bretton Woods system, the US made an agreement with Saudi Arabia and OPEC to compromise a trade agreement between them to trade gas with dollars. This was an ultimate move which resulted in strong positioning and stabilizing the dollar in the global market. As the other countries which gained global currency reserve status, the US too made military bases worldwide to ensure geopolitical influence. So this ensured a prominent position and recognition in the world for the dollar.
The downfall
The downfall started when the US started printing money. They obviously needed to increase their revenue, so they thought printing money would result in higher income. Yes, it’s true, but it should have a demand equaling the supply. They made an assumption that if they could print money as they wanted because the dollars had been flowing throughout the world and it had market demand, printing would solve the problem. The same pattern which resulted for other reserve currency holding countries repeated for the US also, as when purchasing power increases for people, it will lead to inflation as they are holding money, and the goods and services prices increased. This is a common economic term that the economists in their country didn’t consider. This was a major reason that led to the downfall of the US. Yes, this was not the only reason. I mentioned earlier they held military bases in several countries for geopolitical influence. This also resulted in a major drawback for them because the military bases would require spending from the budget. This budget led to exceeding the budget. Not only this was a cause, but they also funded many wars like those against Iraq, Afghanistan, and many others. Even recently, they stopped a war that resulted in overspending beyond the expected budget. So currently, we could see a decline in people’s belief or confidence, mainly leaders, that the dollar’s value is fading off.
Present situation
The current most powerful countries are backing away. The recent inflation rate states a 3% increase in the US, which is a major concern. Similar to reserves that were held earlier, when they lost the value of the currency, it happened when they used to mix silver partially and metal in larger amounts. This is considered similar to printing money that results in inflation, so comparing that and the dollar’s situation, we can assume that the dollar is facing or nearing to diminish its value and lose control. Even gold has increased its value, and since the dollar and gold have an inverse relationship, the dollar’s decline resulted in gold’s value rising. A major concern for the US economy would be the emergence of alternatives and substitutes, where the Chinese yen is gaining power over the economy. People shifting to other currencies have made a big headache for the US. Even investors and potential investors shifting their investment to gold and believing that gold would be the major investment asset in the near future is predicted by top investors in the market, and also its liquidity being just below cash is a major advantage for gold and a major drawback to the dollar. Gold’s value has increased around 30% to 40% in a year’s span, which is a major thing that made investment flow into gold’s place.
Conclusion
The economists predict that in a decade or two, the dollar will diminish from the throne of reserve currency and a new currency will emerge. For now, it’s been the yen, the most expected currency, but time will have the say.
Thank you for reading.