The U.S. dollar, first printed in 1914, has been a bedrock of the global economy thanks to the Bretton Woods Agreement. The U.S. dollar became the the world’s reserve currency and was backed by the world’s largest gold reserves. The National Bureau of Economic Research published the The Economics of World War I. which reports that during the first World War, allies paid the United States for supplies in gold during, propelling the U.S. to become the largest holder of gold. After the war, countries pegged their currencies to the dollar, ending the gold standard.
The US dollar is widely held by central banks, foreign companies and private individuals worldwide, and a reserve currency for international trade and finance. Like any other fiat currency, the dollar's relative value depends on the economic activity and outlook of the United States. That is, a strong economy will attract investment from all over the world due to the perceived safety and the ability to achieve an acceptable rate of return on investment. In addition to fundamentals and technical factors, market psychology and geopolitical risk also influence the dollar's value on the world market source. Thus, we can infer that the U.S. economy's performance has been at the heart of the decision to buy or sell dollars.
Without a doubt, we can say that supply and demand factors, sentiment and market psychology, as well as technical factors are responsible for the value of the value of the U.D. Dollar. Key of these three is the supply and demand, and it forms the thrust for this piece. The demand for the U.S. Dollar is creates when the U.S. exports products or services. This is because customers or the recipients of the products and services need to pay for for what they receive in dollars. There recipient is expected to convert their local currency into dollars by selling their own currency to buy dollars to make the payment. Foreign investors also have to sell their currency to buy dollars in order to purchase bonds issued by the U.S. government. This demand created in turn puts pressure on the supply of dollars, and it evidently increases the value of the dollar relative to the currencies being sold to buy dollars.
We can say that the demand for the U.S. dollar increases when international parties, such as foreign citizens, foreign central banks, or foreign financial institutions need more dollars. THis demand has been on the increse as long as the U.S. dollar remains the world's reserve currency. Other factors such as inflation rates, trade deficits, and political stability are believed to also strongly influence the value of the U.S. dollar, hence, its demand.
The recent political turns and emerging markets and economies are challenging the value of the U.S. dollar and by extension, its demand. It is obvious that the future fate of the U.S. dollar as a dominating currency is threatened, and this constitutes recent financial news. Jim Rogers, an investor is credited to say that the USD’s time is “coming to an end”. First, the BRICS nations (Brazil, Russia, India, China, and South Africa), created the New Development Bank (NDB), as a promising alternative to traditional financial institutions, and the move has received accolades from BRICS member nation and some worthy observations by other nations.
In a recent report, the Brazilian President, Lula da Silva, pushes for the strengthening of the the BRICS bank as an alternative instrument for financing, while also woos African counterpart to support NDB, promising cooperation with the African Development Bank. If such front pushes through, it means that the demand for the U.S. Dollar would drastically decrease.
While the BRICS nations continue to pressure for de-dollarization, top officials from nine Asian countries, that are members of the Asian Clearing Union (ACU), gathered in Tehran for their annual meeting, and de-dollarization was a top feature in their discussion agenda. The ACU currently has nine members: Bangladesh Bank, Royal Monetary Authority of Bhutan, Reserve Bank of India, Central Bank of Iran, Maldives Monetary Authority, Central Bank of Myanmar, Nepal Rastra Bank, State Bank of Pakistan, and Central Bank of Sri Lanka. Apart from the top officials of the ACU members, the governor of the Russian central bank also attending as an observer along with officials from Belarus and Afghanistan. source
They claim that dollar has been weaponised and thus, see de-dollarization not a voluntary choice by countries, but as an inevitable response to the weaponization project of the dollar. It is clear that the number of sovereign nations seeking to reduce the demand for the U.D. Dollar has not added up to 16 and the numbers may increase by the day as the lobbying continues. Already, the internal debt ceiling legislation crisis of the U.S. is another distraction which could further reduce investors' interest in the U.S. Dollar.
Now that cryptocurrency has become a universal option, especially as it not domiciled in any country. I think something has to be done to stabilize the dollar demand or the U.S. would risk its toppling by the BRICS' currency or any other that may gain wide acceptance.
As we watch the events unfold in the coming weeks. What do you think could possibly happen?
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