The first effort of industrialization and making the globe
its market was championed by English but their currency Pound could not remain
the global currency after the world wars. USA emerged as protagonist with the
next wave of industrialization, economic growth with size and strength. And the
Dollar began to gain prominence. Detaching the value of Dollar from Gold did
hurt it initially but paved a grand way for it to become the reserve currency
of the world.
Today, 61% of the forex reserves held all over the world are in Dollars.
This money running into trillions of dollars is a loan to the Govt. of US without
any interest. Since most of the commodities are traded in Dollar, US does not
have to incur forex costs and can trade with very lean forex reserves. This is a privilege for the home country of a dominant currency. US Govt. can borrow massively, run huge
deficits, central bank can expand balance sheet without affecting the value of
its currency. This is an advantage for US but it is a form of a global tax for rest
of the countries who use dollar even when they are not trading with US but as an
international currency.
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