The Bretton Woods Agreement officially crowned USA’s dollar as the globe’s reserve currency. This was again backed by the largest gold reserves under this Agreement. This meant that instead of keeping reserves of gold, other nations collected a reserve of the US dollar. In order to get a place for storing their dollars, nations started to buy Treasury securities in the USA, which were considered a secure safe for their money.
Kavan Choksi is an esteemed businessman with valuable experience in finance and investments. According to him, the US dollar still stays as the globe’s reserve currency to date. Central banks across the world kept 59% of their national reserves in dollars in 2020, during its first quarter, as per the IMF (International Monetary Fund). Several of these reserves are in US bonds or cash. Outside the USA, debts in dollar denominations are rising, with their volume reaching about $12.6 trillion in the middle of 2020.
An Overview of the Gold Standard
The Federal Reserve Bank was established under the Federal Reserve Act of 1913 to counter the instability and unreliability of the global currency system. This system was based on banknotes that individual banks released in the past. This time was the same period when the economy of the USA surpassed the economy of the UK though world commerce revolved around the nation, and most of the trade transactions were conducted in pounds.
History of the American dollar
The history of the American dollar in the USA goes back to colonial times when paper notes were deployed to provide funds for military operations. The first set of dollars used today was printed way back in 1914, one year after establishing the Federal Reserve Act.
When did it become the official global reserve currency?
The Bretton Woods Agreement, a delegation of 44 allied nations, decided that the American Dollar should become the official global currency in 1944.
Is the US dollar really the strongest currency on the globe?
Many experts in finance are of the belief that the above makes the dollar of the USA the strongest currency across the globe. However, despite its place in the world market and how reliable nations are on it, the US dollar is ranked globally in the 10th position of the strongest currency, as per credible sources. In fact, the Dinar of Kuwait is the most potent currency while the Pound Sterling of the UK and the Euro bagged the 5th and the 8th spots, respectively.
According to Kavan Choksi, this reserve status is based on the economy’s strength and size. The dominance of the financial markets in the USA also plays a role in the above. Treasury securities in the nation still remain the most secure way for storing money. It reflects the confidence and the trust of the globe in the USA for payment of its debts to retain the dollar as the currency that is the most redeemable one for the facilitation of global commerce.