Eli5: Why is the U.S. Dollar so powerful?


Eli5: Why is the U.S. Dollar so powerful?

In: 208

A historically stable institution that also is a global superpower and has never missed an interest payment makes it one of the safer places to store wealth.

Pretty much the last major economy not destroyed after WW2. Big army, big economy, developed and produced many technologies – pretty much all electronics, computers, microprocessors, the Internet etc etc.

Many countries relied on US to consume their exports. In order to export to a country, you end up holding their currency.

In a word? Reliability.

The US has never missed a payment on its bonds, ever. That, combined with the overt military power projection and its history as the global currency makes it very attractive.

Everyone takes US dollars. Literally, everyone.

Post-WWII, the US had pretty much the only industrial complex that hadn’t been bombed to shit. In addition, WWII gave the US military bases all over the world.

That meant that for a good while, pretty much every crate of goods going anywhere in the world had “Made in the USA” stamped on it. And they went everywhere. Those military bases meant the US had a physical presence and a familiarity with countries all over the world.

That meant the US could dictate terms. For example, all oil would be traded in US dollars. Does France want to buy some oil? Well, they’ll have to buy dollars first to pay for that oil.

The US had also gotten acquainted with a whole lot of countries that had nice products and natural resources of their own that the US would love to get their hands on. So the US made an effort to install capitalist values or even just outright capitalist regimes that were friendly to the US in as many countries as possible. That way those countries would start trading their resources to the US at beneficial terms for the US.

This is what led to the cold war. The Soviet Union saw where this was heading and had no interest in a global American empire. So while the US was installing capitalist regimes anywhere they could. Russia started installing communist regimes that would trade their stuff to Russia instead.

And while the two were never officially at war, they had no problem with spycraft, assassination and funding bloody rebellions, revolutions and coups in many Asian and South American countries to sway those countries towards capitalism or communism.

The end result is a world where the US has influence and trade relations all over the world and that made the dollar very important.

I think you mean stable. I read somewhere it has something to do with the oil from foreign nations(UAE) being denominated in us dollars