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A global currency refers to one that is accepted for trading across the world. Some of the coins around the globe are taken for a majority of international transactions, and the most popular among them is the U.S. dollar, the Euro, and the Yen.
Kavan Choksi on the growth of the U.S. dollar as a global currency across the world
Kavan Choksi is a famous entrepreneur and an expert in finance and investments. According to him, the relative stability and strength of the American economy support the dollar’s value making it the strongest currency. Another name for global currency is the reserve currency, and towards the close of 2020, America had $2.04 trillion in circulation. Half of this value is said to be circulated aboard, and several of these bills are in Latin America and nations in the former Soviet Union. They are regularly used for daily transactions for the purchase of goods in hard currencies.
Evolution of the U.S. dollar as the reserve currency of the world
The Bretton Woods Agreement in 1944 was responsible for the evolution of the U.S. dollar as the reserve currency in the world. Before this Agreement, a majority of nations adopted the gold standard, and their governments redeemed their coins for the value in gold on demand. The developed countries around the globe had a meeting at Bretton Woods in New Hampshire to peg the exchange rate for the U.S. dollar to all the currencies of the world. During this period, it was the USA who has the largest reserves of gold, and this Agreement permitted other currencies to back their national currencies with dollars instead of gold.
The effects of the Second World War
Nations agreed for the U.S. dollar to become the reserve currency of the world because, after the Second World War, the USA was the only nation that retained its economic stability. It was not affected as severely as its peers like Germany and Japan. At that time, the U.S. dollar could be converted into gold at the rate of $35 per ounce. Moreover, it had a stable supply of gold and was the central hub for trading in the international economy.
The status of the U.S. dollar in the global market today
According to the IMF (International Monetary Fund), Central Banks store 59% of their currency reserves in USD. A majority of these reserves are in U.S. bonds like the U.S. Treasuries and cash. Denominated debt in dollars outside of the USA continues to rise, and the current levels of this debt have reached $13.4 trillion in the middle of 2022.
According to Kavan Choksi, most experts believe that the above makes the dollar the strongest currency across the globe. Despite its position in the international market and how dependent they are on the dollar; it is ranked at the 10th position in the CMC markets. Currently, the Kuwait dinar has emerged as the strongest currency as per its records, with the British pound and the Euro earning the fifth and the eighth positions, respectively.
