What make the US dollar strong against other currencies?
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The dollar is the standard currency for buying oil. Every nation needs to have dollars to purchase its oil supplies. Since countries/companies need dollars for oil there is a larger demand for the currency thereby increasing its value.
The market.
Foreign currencies are traded in a marketplace, where buyers bid to buy currencies with other currencies. The market makes transactions when a buyer and a seller can agree, and analyzes the transactions that go through to report exchange rates.
There is no “Mr. Big” making decisions in a smoke-filled room. It’s just the results of many individual transactions.
Assuming you are referring to recent events…
There is severe inflation going on in the USA now which is driving speculation that interest rates will rise thus increasing the value of the dollar and that there will be profitable treasury bonds to buy.
We have the largest GDP in the world and set the pace for the global economy. Our combined assets + yearly GDP allows us to guarantee our currency based on faith.
The dollar will always be king, and if the dollar is doing crap, all other currencies will be just as bad
America actually hasn’t had a revolution or a major coup since 1860. We got thru the two world wars relatively unscathed. My nation is relatively stable. So the theory is American currency and more importantly debt are safe.
There is larger confidence that the US will continue to “make” more value than other countries. Therefore, it is a safer bet in 100 years that X amounts of USD will be of more value than that same X amount invested in any other currency in 100 years.
That is basically it. Confidence in the US Economy
Why do people “buy” dollars, strengthening the currency? Here’s two (of many) reasons:
1. The local currency is risky. Holding Zimbabwean dollars is risky, so I want to buy USD.
2. In order to invest in the US, I need USD.
So what’s happening now is a mix of both. The world is going through a lot of turmoil — Ukraine, Russia, covid, oil shocks, food shortages, etc. In an environment with so much uncertainty, people look for a place where they’re more confident. That tends to be the United States. The whole global financial system is grounded in USD, which is supported by the largest economy on the planet, so it’s a relatively “safe” place when the whole world is uncertain. Despite what you might see on social media, the fundamentals of the American economy are still very solid: productive workers, lots of resources, good education, stable government.
Furthermore, the US is taking aggressive action to stabilize its currency by fighting inflation. The main way this is done is “raising rates” — you might have seen someone say “the fed is raising interest rates.” So if a US bond offers (hypothetically) 3% interest, and a Japanese bond offers 1% interest, I would buy a US bond. As the US raises rates faster than other countries, it makes these types of things even more appealing. More investment increases demand for dollars, bidding up the value.
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