This website uses cookies to ensure you have the best experience. Learn more

Decline Of Us Dollar Essay

2561 words - 10 pages

For more than sixty years the United States dollar has been the central reserve currency for the world. A reserve currency, also referred to as an anchor currency, is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves (Carbaugh, 2011). As the world’s reserve currency, the U.S. dollar is used throughout the world as a medium of exchange and is used as the global currency for products traded within the global market. In recent years the status of the U.S. dollar has been contested by a select few around the world. Leaders are unconvinced about the future of the United States economy as their deficits are exceeding record highs. The following analysis will discuss the history of the world reserve currency, how the U.S. dollar became the controlling currency and the benefits the U.S. has experienced as a result of having the controlling currency. Presenting analysis will also discuss the cause of mounting concerns over the future of the United States as well as the effects if the dollar was to lose its status as the world’s reserve currency. Finally, alternatives for the dollar will be evaluated as well as what the United States can do to maintain the standing of the dollar.
History of World Reserve Currency
During the 1800’s and the first half of the 1900’s the British Pound served as the foremost world reserve currency. Due to WWII Great Britain accrued a high amount of debt and lost its status as the world reserve currency. As the British Pound was decreasing in value, the U.S. economy became stronger after the war due to a considerable inflow of Gold into the states and rapid economic development.
After WWII the international finance system was governed by the Bretton Woods Agreement of 1944. This agreement established rules and procedures to regulate the global financial system by accepting the U.S. dollar as the world’s reserve currency. The U.S. dollar was selected due to the performance and stability of the U.S. economy. Once the Bretton Woods Agreement ended in the 70’s, the U.S. dollar continued to be the world reserve currency as it was considered by foreigners as a sound investment and provided higher rates of return. The U.S. economy was viewed with having stability and the strength to back the dollar. It is now estimated that two thirds of all currency held in reserves is made of U.S dollars while the next closest is the Euro, which makes up about one fourth of the currency held as reserves (Greenwood, 2009, para. 1).
U.S Benefits from Strong Dollar
The U.S. dollar was considered one of the strongest of the major currencies and was also considered a safe investment for foreigners during uncertain periods. Global investors were driven to invest in U.S. assets as they believed they were purchasing sound investments that were also providing a higher rate of return. Over the years both the U.S. government and U.S. citizens have reaped the...

Find Another Essay On Decline of US Dollar

The U.S. Dollar in a modern global economy

1156 words - 5 pages subject to variables greater than our macroeconomic scope in its domestic capacity. It is also not easily repaired once damaged. One would think these qualities would implore careful management in order to protect the wealth of the most powerful nation in the modern world, not to mention the potential impact to global economies. One would think…..ReferencesAmadeo, Kimberly "Value of the U.S. Dollar".About.com US Economy.. (March 03, 2008)http

The J-curve Phenomenon Essay

1303 words - 6 pages Many researches have been conducted on the influence that the increasing exchange rate has on the trade balance deficit in developing countries. This paper contributes to the literature by investigating and testing whether the J-curve phenomenon exists in Jamaica. Meade (1988) stated that, because of the exchange rate rapid decline so much since early 1985 in the US and because the monthly trade statistics has been examined so thoroughly for

Foreign Exchange and Economics For Business

1813 words - 7 pages expected to increase as a result of improved job prospects and structural labor market reforms in various euro area countries. Overall, according to the projections, the unemployment rate should start to decline this year" (http://www.ecb.int/pub/pdf/other/ecbstaffprojections200503en.pdf) It is interesting how the value of the Euro and the US dollar has changed over the years. Part of the changes is primarily due to the fact that other

Us involvement in world affairs

1240 words - 5 pages needing jobs the US bumped post war production into high gear. With a powerless void in Europe the US stepped in like big brother to give aid to devastated countries. After the war the US had the highest GDP by a large margin and still maintains it to this day. The United States face many problems. Some of these being domestic and others international. Some domestic problems the US faces are the collapsing US dollar. The rising unemployment rate

Exchange Rate in Russia

770 words - 4 pages 1. Assume that substantial capital flows occur between the United States, Country A, and Country B, in all directions. If interest rates in Country A decline, how could this affect the value of Currency A against the dollar? How might this decline in Country A’s interest rates possibly affect the value of Currency B against the dollar? Interest rates, inflation, and exchange rates are highly correlated; interest rates have been used by Central

The Foreign Exchange Market

1308 words - 6 pages . Available at: http://www.investopedia.com/articles/forex/japanese-yen-what-fx-traders-should-know.asp Retrieved at 6th April 2014 Japan’s rising yen and the decline of the US dollar, East Asia Forum, 2011. Available at: http://www.eastasiaforum.org/2011/10/01/japan-s-rising-yen-and-the-decline-of-the-us-dollar/ Retrieved at 7th April 2014

Current Account Deficits

1398 words - 6 pages dollar bonds sold by the U.S. Treasury: “the primary reason why it would be unwise for foreign portfolio investors to continue to accumulate dollar securities is that the dollar must eventually decline as part of the trade adjustment process” (p. 116). Feldstein ultimately concludes that While the need for a more competitive dollar as a key to shrinking the trade deficit is clear to most professional economists, the IMF officials and the

The New Economic Map of the World. Asia's Effect on the Western Economy. Post-Globalized Economies

553 words - 2 pages someone think when something goes wrong, "Who do I sue?" As a result, the economy will grow slowly and the dollar will continue to decline. Eventually the dollar will reach a point where investment in the US will become attractive again, and some of your products will be more competitive. Looking out further, there are promising prospects in nanotechnology and biotechnology, where you are the leader. But those are four to eight years ahead of us

The Impact of the Asian Crisis in Malaysia

1848 words - 8 pages ringgit was "attacked" by speculators. The overnight rate jumped from under 8% to over 40%. This led to rating downgrades and a general sell off on the stock and currency markets. From a value of 2.52 to the US dollar in June, 1997, it went down to 3.2 to the US dollar in September, 1997, just three months after the crisis struck. It reached a new low of 4.5 Ringgit to the US dollar in January, 1998 (Tourres.2003,78,193). This severely

The Strength of the Australian Dollar

685 words - 3 pages commodities. • The lack of demand for the USD on a global basis has seen the USD depreciate not only against the AUD but other currencies. With US cash rates close to zero (at 0.25 per cent), and the US Federal Reserve continuing to ensure a high level of monetary liquidity in the economy via its quantitative easing (QE) and other programs, this has led to the ongoing decline of the USD, despite the ongoing financial instability across Europe. Therefore, we decided to invest in 2,000 AUD (approximately MYR 6000.20) which occupied 30.01 percent in our FOREX investment portfolio.

Consequences of weak US Dolar to Czech company

1842 words - 7 pages government announced a bigger-than-expected decline in job numbers last month the dollar fell down to a record low against the euro, above $1.54 (data from 7th March 2008), and at the same time fell against a basket of major currencies. A weakening US economy means lower interest rates and lower dividends on US assets.Nearly daily we can hear new information about bad US economy which causes deeper and deeper collapse of the dollar. The Federal

Similar Essays

Factors That Influenced Bmw Decline Of Unit Sales From 1986 To 1991 In The Us Market

789 words - 3 pages There were many factors that influenced BMW decline of unit sales from 96,000 in 1986 to 53,000 in 1991 in the US market.The entrance of Japanese manufactures in the US luxury car scenario in 1989 selling reliability with price competitiveness, an old fashioned positioning relating BMW's brand only to luxury/performance business and some economical and political events contributed to a loss of market share and image.Environmental AnalysisSales

Symbols And Myths Of The Us Dollar Bill

740 words - 3 pages Symbols of the dollar billOn the front of the bill is a stamp of the U.S treasury department that includes a scale, which represents justice, a key, which represents authority, and thirteen stars to represent the thirteen colonies.On the back of the bill are two circles, which together make the seal for the United States. In one circle is a pyramid where the face is lighted but the west side is dark. This represents that America was still a new

Shrinking Dollar Growing Euro Essay

644 words - 3 pages , may continue for some time. However, as consumer confidence increases, like it has over the recent quarter, it may help to turn this decline around for the US Dollar (Martens). Federal Reserve Chairperson Alan Greenspan in a March 2002 speech pointed out that as foreign investment in the US has been increasing since the mid 1990s, investors will become wary about the soaring deficits in the balance of payments. Simply put, as foreign companies

Shrinking Dollar Essay

639 words - 3 pages and may continue for some time. However, as consumer confidence increases, like it has over the recent quarter, it may help to turn this decline around for the US Dollar (Martens). Federal Reserve Chairperson Alan Greenspan in a March 2002 speech pointed out that as foreign investment in the US has been increasing since the mid 1990s, investors will become wary about the soaring deficits in the balance of payments. Simply put, as foreign