The US dollar has come a long way since its introduction in 1792. Over time, it evolved into the world’s reserve currency, holding the highest level of confidence and liquidity, surpassing all other currencies in circulation.
In times of geopolitical turmoil, and a lack of trust in other monetary systems, the US dollar becomes the currency of choice of foreigners and foreign institutions that convert and park their money in US dollars. The currency closely associated with the history of a nation that became the dominant power of the world. This power is eminently represented in the trust in the US dollar. There are 20 countries using a currency called ‘dollar.’ However, the US’ economic dominance eclipses the visibility of all other dollar denominations in circulation.
The foreign exchange, called ‘FX’ or ‘forex,’ is the marketplace where countries from around the world exchange currencies. It is the largest market in terms of trading volume, surpassing the credit markets and the trade of goods and services. About half of the approximately $5 trillion of transactions that are settled daily are denominated in US dollars.
It is estimated that approximately 70% of the physical paper dollars in circulation are held outside the United States, mostly in $100 notes.
What helped make the US dollar the reserve currency is exemplified by the fact that a dollar issued in the 1860s is still a legal tender today, unlike the fate of many other currencies.
Federal Reserve Notes, are commonly known as money: Amedium of exchange that guarantees the fulfillment of a transaction. Its value is generated by confidence in the government and its institutions to manage the economy in a trustworthy and competent manner. These institutions would not exist without the underlying reality that a currency is backed by the total productive capacity of its people.
There are approximately 30 million small businesses in the United States. They hire close to 60 million workers. A small business is defined as a businesses with fewer that 500 employees. To be fair, the total number small businesses includes individuals that are independent contractors. Overall, these businesses account for 97% of all economic activity in the US.
Communities across the nation rely on individuals and small businesses for production of jobs, goods, services and the general economic well-being of the population. The the sum production of all goods and services generated by the US workforce is defined as Gross Domestic Product (GDP). It creates revenues and profits that is taxable income levied by various levels of government, who in turn distributes the money for public works, services, social benefits and the defense industry.
The total productive capacity of Americans is generated by entrepreneurial spirit and all types of of labor, beginning with the settlers and all other immigrants that followed who came from varied parts of the world to the US to benefit from and contribute to the economy. They enabled the creation of a global network of contacts that favored global trade and economic growth.
As Alexis de Tocqueville observed during his journey in the country, Americans are not concerned by lofty ideals of virtue or righteousness. They are driven by self-interests, profits and wealth, principles that underline the American Way of life.
America’s entrepreneurial spirit produced the US’ dominant role in the world economy. It is secured by its military power and the global reach of Corporate America. And is responsible for US’ dollar status as the reserve currency of the world.
The strength of the US dollar will inevitably cause dislocations to other currencies and the world economy. When this happens, a reassessment about its role as a reserve currency will likely occur, and a new era in the global economy will unfold.
Read more about the symbols on US Dollar here.