US Dollar: Why does the dollar rule the world? How a war turned the fortunes of the US currency

How Dollar Emerged as a Strong Currency: The US dollar is recognized as the global currency all over the world. Today in our report we will know how the American currency achieved this position. 

May 16, 2023 - 19:01
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US Dollar: Why does the dollar rule the world? How a war turned the fortunes of the US currency

Whenever you think of the world's strongest currency, the name of the US dollar must come to your mind first. Along with America, many small countries of the world also use the US dollar as their currency. In such a situation, the question arises that how the dollar became the strongest currency in the world.
Paper currency was first used in America in 1690. At that time it was used only to meet the expenses of the military. After this, in 1785, the official sign of the US currency dollar was selected. The US dollar changed over time, and the printing of the current dollar began in 1914 after the establishment of the Federal Reserve, the US central bank.
The Federal Reserve Bank was established in 1913 through the Federal Reserve Act. Earlier, the monetary system in America used to run only with banknotes issued by different banks. 1913 was the same year when America had overtaken Britain to become the world's number one economy. However, even during this time, Britain dominated world trade and most of the business was done in the British pound.
At this time, most countries used to support their currency through the Gold Standard. Under the Gold Standard, a country could print as much currency as it had gold. When World War I broke out in 1914, many countries abandoned the gold standard to meet their military expenses, and their currencies began to decline in value. However, Britain did not abandon the Gold Standard during this time.
Britain abandoned the gold standard in 1931 for economic reasons, which destroyed the bank accounts of international traders dealing in the pound. At the same time, during this time many countries started buying dollar-dominated US bonds. After this, the acceptance of the US dollar exceeded that of the pound.
At the start of World War II, the United States had become the main supplier of arms to the Allied group led by Britain. The US was paid in gold on behalf of all those countries. As a result, by the end of the war, most of the world's gold had come into the hands of America.
After this, representatives of the 44 countries of the Allied Group met in Bretton Woods, New Hampshire, USA, to work out a system that would not harm any country. It was decided that the world's currencies would not be measured by gold but by the US dollar, as it was linked to gold. This became known as the Bretton Woods Agreement. It also fixed the jurisdiction of the world's central banks and would fix the exchange rate between the dollar and their country's currencies.
Due to the Gold Standard to the Bretton Woods Agreement, the US dollar gradually became the world's strong currency and was kept by many countries in their foreign exchange reserves, which made the dollar more powerful. This increased the demand for the US dollar so much that President Richard Nixon had to de-link the dollar from gold to meet it. For this reason, a floating exchange rate in dollars started. Today, the changing price of the dollar is the result of this.

Muskan Kumawat Journalist & Writer