The US Dollar: Why Is It The Global Currency King?


The US Dollar: Why Is It The Global Currency King?

There is always the top brass of every organization. You can’t start a conversation about the strongest superheroes and not mention Superman. Or you can not say that Apple is the greatest without acknowledging Samsung’s contribution. And in the case of this article, you cannot talk about the top currencies and not mentioning the global king of currencies the US Dollar.

The US Dollar is the most recognized form of currency. And is widely used in almost all types of media. In addition, it has become the global flag bearer or basis of measurement. However, how did this simple currency change how the world views currencies? And why should you start to trade for the USD? All that and more will be answered in this article about the US Dollar and why it is the global currency king.

How Did The US Dollar Become The World’s Strongest Currency?

The bigger they are, the harder they fall. And the United States of America is the biggest one of them all. The dollar is fully supported by the sheer strength of the US economy. Thus the US Dollar is the most powerful currency currently in the world. And there is no chance of change in the next couple of years. Around $580 billion in U.S. bills are used outside the country. That’s 65% of all dollars. That includes 75% of $100 bills, 55% of $50 bills, and 60%of $20 bills.

The US Dollar: Why Is It The Global Currency King?
The US Dollar: Why Is It The Global Currency King?



And it is not just cash that indicates the role of the dollar. One third of the entire world’s GDP, also known as the Gross Domestic Product, has their respective currencies directly tied down to the US dollar. In addition, there are even some countries that fully adopted the US dollar as part of their own currencies. And another 89 countries are trading in a tight range relative to the dollar.

Impact Of The US Dollar On The Forex Market

The forex market, despite its massive size, is still being ruled by the USD. Case in point, around 90% of forex trading involves the US Currency. And if the USD suddenly uproots itself and disappears then more than 40% of the world’s debt will go missing. Thus most foreign banks have no choice but hold massive amounts of dollars to be viable for business.

Because the dollar is such a powerful form of currency, most governments are allowing the dollar to be used as part of their own reserves. And any transaction done on foreign soil can be used by the government to acquire currencies. They can also be redeemed by regular civilians who need to trade their foreign currencies to use the dollar.

The US Dollar: Why Is It The Global Currency King?
The US Dollar: Why Is It The Global Currency King?

Why Is The USD Considered The Global Currency?

Everything started with the 1944 Bretton Woods agreement, more on that on a different article. The Bretton Woods agreement basically is what pushed the dollar into its current state. However, let’s backtrack a bit.

Most countries before the agreement were on the “gold standard”. Simply put, the governments were promised there share of currency value as long as they redeem their value in gold. And because the US has the most amount of gold at the time, they are then deemed the head of the foreign currency market. As such, most countries pegged their currencies to the USD. At that time, the U.S. held the largest gold reserves in the country so it made sense for the other nations to use them as the basis for a global currency. And the agreement solidified their currencies to be backed with the dollars rather than relying on gold.

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