• 9. 12. 2024 • H. T. •
The US Dollar Dominance
Did you know that the US dollar is the world’s primary trade currency? This means that global trade often relies on the dollar and many countries hold significant amounts of USD in their foreign exchange reserves.
Historically, during the Bretton Woods system (1944-1971), many major currencies were pegged to the USD, which was itself pegged to gold. When the US ended the dollar’s convertibility to gold in 1971, these currencies continued to maintain a relationship with the dollar even after the gold peg was removed.
With no peg to gold, the US can now print dollars out of thin air. But what are the consequences of US printing currency?
Global impact
When the US increases the $ currency supply, it usually leads to inflation. This inflation doesn’t just affect Americans; it has a ripple effect across the globe. Countries with currencies pegged to the USD, or those heavily involved in trade with the US, also experience inflation.
What does this mean? Do other Governments print at the same rate or worse than the US?!?
How can we see that? Does the exchange rate of other currencies rates vs. USD remain broadly the same or even worse?
Conclusion
In short, the dominance of the US dollar means that actions taken by the US Central Bank (FED) can have significant impacts on global inflation. It’s a complex web of economic interdependence that highlights the importance of understanding global financial systems.
