Why is American Dollar the Most Powerful Currency in the World ?

America is the superpower of the world. As we all know the American dollar is one of the most used currencies for world trade. This is one of the strongest pillars behind America’s supremacy over the world. However the roots behind the same lies years back during the World War 1 and World War 2. America currently leads the world with its dominance through the International Monetary Fund, SWIFT Method and World bank. Alongside this it also has the United Nation Organisations behind it to support the economic and social problems in the world. 

Currently the U.S. economy is so interconnected to the world that any change in the country affects the entire world. For instance any change in the interest rates of the Fed has a long lasting and immediate effect on the world’s banks. A recent example of the same is the Rate hike by the Fed. This caused a market mayhem and not only the U.S. markets but all markets across the world deteriorated due to the same. For instance the Indian markets suffered huge losses due to this situation. The booming Indian stock index came down to the 15000 range due to this reason. 

So how does America become a superpower and how does it dominate every country across the world? Let’s understand the entire scenario through the history of this country.

America and World War

The strength of every country’s currency is dependent on the strength of its economy. The entire situation initiated between 1920 1940 when World War 1 took place and World War 2 was at the edge. Every nation was indulged in the war to prove their supremacy. The nations were fighting for dominance and the Britishers were the most powerful ones at that point of time. The reason behind the same was the widespread rule of the British empire in the world. But the British rule collapsed with time due to their increasing expenditure and debt during the war.

The British debt was reduced to 0.6 Billion pounds in 1913 given the income coming from across the world. However due to the war the debt increased to 7.8 Billion pounds in 1930. Britishers were not the only sufferers at that point of time. Every country involved in the war was going through the same situation including France, Germany, Italy etc.

However the Americans were very clever to not directly become a war participant at that point of time. The country at first indulged in the war as a merchant and that became a war participant. In other words America Supplied the world with goods like cotton, brass, automobiles, machinery, wheat and others. This became the reason behind a major boom in the U.S economy. The statistics point out that the exports of America increased from 2.4 Billion Dollars to 6.2 Billion Dollars between 1913 and 1917. This is a 1.5 times hike in exports within a span of 4 years. However post the Pearl Harbor incident America entered the war as a War Participant.

By conducting such business across 2 World War the American government accumulated more than 75% of the Gold across the world.

Gathering the Countries

America then accumulated major countries across the world and made an agreement named as Bretton Woods Agreement. This meant that all countries were ready to compare their currency against the U.S and the U.S currency was compared to gold. At the initiated almost 28.3 grams of Gold was equivalent to 35$. America promised the countries that if they held the dollars and later on wanted to exchange the same then the redemption would be made in gold. Thus a safe measure and security against dollar was created and this is how America Started building its dominance across the world. Thus inter country trade has also been made safe through this method. If any nation’s currency crippled then also the dollars would have a value dominance against the gold and hence it can be treated as a safe mode for exports, imports and trade.

IMF and World Bank

Under the Bretton Woods Agreement, the International Monetary Fund and World Bank was created. Thus post the World Wars when the nations needed funds to build their economies again the America provided them with required loans and hence created a supremacy against the other countries. Hence any country signing this agreement would become a part of these organisations. This would make it easy to avail long term loans for development and other purposes.

Thus the importance of Dollars was seized and this made the American Currency one of the most used and safest currency at that point of time. However the entire scenario for America becoming a world dominator would be explained in the next part. The dominance was extended with America’s sharp move to bank on crude oil for the next decades to come. Another move was the introduction of the SWIFT method for trade in the world.

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