Eli5: Why is the U.S. Dollar so powerful?
In: 208
Add to the very nice explanations above, ever heard the old joke about if you owe the bank $100 they got you by the nuts but if you owe them $100,000,000 you have them by the shorts ones?
Well, in our case, we (USA) buy more shit than anybody else on the planet and in essence tell them (everybody), we’ll pay you in Dollars, lump it or leave it. This works in reverse, also. Case in point Russia recently told the EU, pay us in Rubles or fuck off. Ruble has climbed as a consequence of all the EU nations doing exactly what they railed against doing.
Someone mentioned China . . . they don’t ‘want’ Rimimbi Yuan to be too strong because that forces buyers to look elsewhere for cheap goods, think Vietnam, Phills, etc. so they play a very careful game of peg the Dollar but not. And circling back to the bank analogy, take it to the bank they (China) took notes of what Ruble experienced.
The US protects global shipping lanes and heavily influences global oil supply. It’s also one of the most stable, readily accessible global currencies. For both reasons, countries buy and sell goods in dollars. When countries buy and sell in a specific currency, they also end up buying lots of bonds in that currency. This gives the government and central bank of this currency lots of power.
An overly simplified example: Canada is buying oil from Saudia Arabia in a year. Saudia Arabia is only going to sell that oil in dollars — the US made deals with them to do so. Canada needs to have a bunch of dollars in a year, so they buy US bonds now. If you were saving for a big purchase in a month, you’d put your money in a savings account too, right? Those bonds give the US government a loan, which increases the federal governments annual budget. It also creates a huge market for US financial services to support all that movement of money. The Federal Reserve also now has a bunch of Canadian wealth floating around in dollars, affected by Federal Reserve monetary policy.
The oil bit of this is called the [petrodollar system](https://www.lynalden.com/fraying-petrodollar-system/). The fact that everyone, everywhere uses dollars is called [global reserve currency status](https://www.investopedia.com/articles/forex-currencies/092316/how-us-dollar-became-worlds-reserve-currency.asp). These two concepts together are what make the dollar so powerful.
Because we are a world wide empire and we’ve spent 100 years ensuring that would continue. There are a thousand reasons that makes it so, but the biggest one right now is the oil backed dollar – the fact that people with oil agreed to take USD as sole payment. Tying your currency to the most critical energy asset on the planet means that the USD is king.
Because the US didn’t have to deal with 2 major back to back wars in the 1900s. It butted in 3 years late to each, screamed, and then guilded itself a victor
Its economy got to grow a lot because it didn’t get destroyed in WW1 & 2 like Europe & Asia did. Africa’s been fairly poor for most of recent history, and South America has been taking a massive L along with em.
As a result, US dollars are a massive safe bet. You can use em to buy just about anything, and they’re not about to become worthless any time soon
the us dollar is backed by the threat of the us military
that’s basically it
its backed by the threat of violence from the most powerful army/navy/AF in the world ; thus if you are a smaller country and you dont kowtow to the IMF/Fed/etc the US military ‘helps’ to ‘liberate’ your country from its ‘tyrannical’ rulers ; this has happened many times
I’m not young enough to list all the pots America got their fingers in. Or had in their quite short history for that matter.
Latest Answers