Many explanations I read come down to “almost everyone uses the dollar in international trade”, ” almost all energy is invoiced and paid in dollars” and “almost all international financial flows go through NY one way or the other”, but that just seems a restatement of the fact that the dollar is the reserve currency of the world. My question is: why? How did it end up that way?
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Pretty much the essence of fiat currency.
You sell pork, I sell tires. I want pork but you don’t want tires. We trade something of value to both of us. Back in the day it was gold and metal. Now it’s money that is usually backed by gold but that’s a different story.
I’m from country a and you’re from country b. We want to exchange goods but I don’t want country b currency because i may want to trade with person c who doesn’t want currency from country b. Everyone around the world, but countries n and z, take currency from USA. Therefore everyone trades in USD currency.
US imperialism after WW2 due to the unique circumstances of basically every other functioning advanced economy being destroyed.
Then through a series of coups, invasions, and assassinations against any country who didn’t go along.
The US weaponized the SWIFT banking system in 2022 which caused a lot of countries who were ambivalent about the whole thing to start finding alternative means of trading.
The petrodollar (oil contracts must be priced in USD) made it so there was always demand for the dollar.
The petrodollar is also dying.
It used to be, with the growth of Brics there is no global reeserve currency at the moment. Why it became so, because ww1, and ww2 had almost zero affect on mainland america, so they continued development and grew a stable economy that the war torn world used to back their currencies and investments. It was all great, until world trade organizations and US empire didnt start using the dollar as a weapon to keep itself as number 1, so now there is no more global reserve currency. USD is still considered a reserve for the western alliance though. For the time being.
The US was poised to be the world’s greatest superpower after world war 2. Because America was half a world away from the front lines, America explained less devastation in comparison. Others mentioned the Bretton Woods agreement where world powers decided to use the dollar that way.
America earned a lot of good will with other countries during world war 2. The lend lease act, like the one used for Ukraine now, helped to provide weapons and material support for America’s allies. There’s the promise that beneficiaries will return weapons and such and pay back after they win the war. But the majority of the cost was forgiven. After the Bretton woods agreement the US helped to rebuild western Europe through the Marshall plan; it gave massive amounts of money to help countries recover economically from the war.
There are countries that have bad inflation problems from printing too much money which causes devaluation of their currency. In Venezuela the dollar is now the de facto currency because of its stability. Saudi Arabia used to exclusively use dollars for their oil because of good relations with America. Now they’re willing to accept China’s currency. Many large countries are part of Brics, an organization that attempts to reduce reliance on the dollar. Brazil, Russia, India and China are some of the world’s largest and most powerful nations.
China in particular has many economic agreements for building infrastructure with other countries. The silk road was a series of trade routes that allowed for trade between Europe and Asia. Now China has a belt road for global trade. But because of corruption, many countries regret their unfair agreements with China.
Money is a promise to allow you to redeem for goods. All gift cards are a good analogy of money in this manner. And not all gift cards are equal. A gift card for a local restaurant that you dont live near might be useless to you, while an Amazon gift card is as good as cash. The reserve currency of the world ends up being whoever has the strongest economy. This has been the US for decades, the same way Amazon’s gift cards are more valuable because it’s a strong company. Your unwillingness to accept someone’s local restaurant gift card vs cash would be the same reason why most countries cannot be the reserve currency. No one wants it.
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