The Mighty US Dollar: Why It’s the Reserve Currency of the World

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 US has been the largest economy since 1871. The free movement of people, goods and services between the fifty states has been a dominant feature since the country’s foundation.

English, its official language, has been instrumental in facilitating the exchange of goods and services throughout the country, enhancing economic growth.

Since 1913 the US has benefited from a federal reserve system comprised of 12 regional Federal Reserve banks that provides liquidity to all states in times of financial crisis.

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.

The 1960s saw a substantial increase of US dollars held in Europe and elsewhere around the world. The expansion of these financial obligations put constraints on the dollar. As a result, on August 15th, 1971, the US unilaterally abandoned its commitment to the Breton Woods Accord that had been in place since 1944. The end of the agreement resulted in the suspension of the dollar’s convertibility into gold.

The value of the dollar was left to rise and fall according to market demand, the health of the US economy, and the confidence in the capital’s economic policy. The Breton Woods Accord inaugurated the dollar as a reserve currency of the world. Its cancellation de facto expanded its use.

Because the dollar was no longer backed by a physical and quantifiable precious metal like gold, the currency fluctuated wildly, creating uncertainty and inflation. This affected the price of imported items that were essential to the US economy, especially oil. The end of the accord contributed to the ‘oil shock’ of the early seventies.

As a result, the price of oil quadrupled in 1973. In order to remedy currency volatility, an agreement was made with Saudi Arabia, the leader of OPEC, to peg the price of oil to the dollar. In return, the participating countries would benefit from investing in a strong economy and use their dollars to purchase bonds, stocks, real-estate, and military weapons.

The term ‘petrodollar’ was coined to reflect the agreement between oil producing countries and the US. What the deal means is that in order for any country to purchase oil from OPEC, they first need to purchase dollars, honoring the dollar as the reserve currency of the world.

Federal Reserve Notes, are commonly known as money: A medium 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, transparent 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 of small businesses includes individuals that are independent contractors, also referred as self-employed. Overall, these businesses account for about 40% of GDP and the bulk of non-government 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 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. They have carried with them cultural contribution from all parts of the world sustaining the course of civilization.

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.

The US’ entrepreneurial spirit has been America’s defining trait since the first Settlers set foot on the colonies. This trait stems from the fact that immigrants take a gamble with destiny by breaking with the past looking for a better life elsewhere in a land where the ownership of real estate is readily accessible. The new-comers for the most part, did not have the privilege of owning property in their country of origin. The ownership of property would turn out to be the most powerful generator of wealth in US’ history.

Americans, except for the first people, are all descendant of immigrants.

The history of US immigration shows cyclical episodes of discrimination against new-comers of various ethnic and religious origins, especially in times of economic slump or inequality. However, the clashes and rivalry between ethnic groups are tapered off by the slow process of integration made by future generations of children of immigrants that define the evolving nature of the American way life.

Included in the mix is that a corporation is considered a US person. Any company from around the word can set up shop in the United States and become a US person and do business in US dollars.

America’s industrial progress is displayed by a short list of US corporate giants that have contributed to the dollar’s status as the reserve currency : GE, Ford, RCA, Procter & Gamble, McDonald Douglas, Boeing, IBM, Microsoft, Apple, Google, Netflix, Amazon…

The US has the world’s biggest budget allocation for the military and the defense industry with an arsenal of nuclear weapons that is only matched by Russia’s. The country is geopolitically secure by having peaceful neighbors to the north and south, moated by a natural buffer zone consisting of the Atlantic ocean to the east and the Pacific to the west.

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 enabling the US dollar to attain its 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.

In Memoriam: Elda Rizzotti

On April 9th my mother passed away at the age of ninety of heart failure. She expired her last breath in a Montreal hospital after being transferred from her senior care facility. She felt lost and alone during the last days of her life. None of her children could visit and be at her side because of the lockdown.

Elda Pietrella was born on August 28th 1929, weeks prior to the Crash of 1929 and died at the height of the covid-19 fear of contagion that infected and paralyzed a normally working society.

She lost her father when she was 15. He died while her mother, my grandmother Augusta, was pregnant with my uncle Toni. She was the oldest daughter with one sister and two brothers. After completing her fifth grade she left school to work at a farm in the outskirts of a small town of Provesano in Friuli, Italy, to help support her family. She lived through the folly and devastation of the Second World War.

She met my dad Giuseppe Rizzotti in a neighboring town of Barbeano. They got married on May 7th 1949.

She joined my father in Tangiers International were he had found work. The city where I was born. Two years later political change was brewing under the surface and my father, mother and I went back to Spilimbergo, Italy, were my sister Antoinette was born.

The lack of work in Italy compelled my father to move to Montreal, Canada. Three years later my mother, my sister and I left Naples and sailed across the Atlantic and landed in Halifax, Canada: A long train ride away from Montreal, Quebec.

One year later, in 1957 she gave birth to my brother Jimmy. Her children were born in three different countries/continents.

My dad was a ship. My mother was his harbor…

Last time I saw my mother less than a year ago, she told me about when she was pregnant with me, that women had warned her to get ready for the pains of childbirth. She revealed with a smile that I popped out with ease. She felt no pain, only joy.

She was a beautiful and loving mother, unconditionally devoted to her family, and tough as nails.

I am the intertwining union of my parents genes, the flesh and blood of my mother: A wholly trinity.

She will always live in my heart.

She leaves behind in sorrow, her children: Michael, Antoinette, Jimmy and her grandson Gabriel. And all the people she graced by her presence…

The Only Thing We have to Fear Is Fear Itself

The title of this post is a quote from Franklin D. Roosevelt’s inaugural speech. He was the 32nd president of the USA from 1933 until his death in 1945, spanning the depths of the Great Depression to the end of the WWII.

Fear is the contagious disease we need to fight against. It is infecting people’s mind and bodies; not only our biological bodies but mostly our social bodies.
We are at war with an invisible enemy of biological origins that has generated a global contagion of confinement and retreat, unprecedented in the history of the world.

This fear has propelled a fragmentation of social bodies and set in motion the destruction of world economies. This destruction will degenerate in civil unrest, violence and world conflicts.
Fear alters the perception of reality and incapacitates the ability for individuals to reason normally: Only a minority of people will be infected and die due to diagnosed covid-19, whereas a great majority of people will be infected and affected by the destruction of the economy.
To win the war we must not retreat but face the enemy heads on. Like any war we must move forward and expect casualties.
The propagated remedy so far will be far more destructive to humanity than the biological virus itself.

“The Real Enemy Is Fear Itself”

CUI BONO: Who benefits from propagating the destruction of the economy?And for what reasons?

Thanksgiving: A Civil Religious Celebration

In a cultural environment where anything goes, the use of the words religion/religious makes people uneasy. The reason is that a majority of people believe that we live in a predominantly secular culture without the need of any moral constraints or guidelines. This type of mindset promotes the perception that abiding to any ethic standard would infringe on an individual’s civil rights. This uneasiness with civility and religion is oblivious to the fact that our contemporary world is dominated by popular cults that are sectarian, regressive and divisive.

Consequently some clarification is needed to explain the nature of civil religion, and more specifically the meaning of religion.

It comes from the Roman religio. It relates to the proper rituals and ceremonies dedicated to the gods performed by the mortals in order to maintain the beneficial order and prosperity of the city-zens of Rome.

Religio is foremost civil and civic, and implicitly political. It reflects the power of the gods being the eternal representatives of hierarchy embodied by the mortal rulers of Rome.

As a side note, the word religion is not used in the Old Testament. And the few times the word appears, it relates to foreign beliefs systems considered heathen or pagan. It does not show up in the synoptic Gospels. The word is only used in later epistles influenced by the predominant Roman culture. What the Bible reveals is faith in the presence of the almighty who communicates with individuals whom he sets apart to instruct, to lead, to prophetize and govern God’s chosen people. Making sure they abide with the covenant he made with them and the commandments he gave them.

In the US Thanksgiving is a national holiday. A similar holiday is celebrated in many other countries on various dates. It is a day set apart on the Roman calendar we still use today, as feriae or “holy days”. Citizens are off work and most institutions and commercial activity is kept to a minimum. Incidentally, the act of “setting apart” is a specific attribute of what is defined as “sacred” and “holy”.

The early Settlers were mostly Puritans and Protestants. As such they inaugurated a faith based holiday of Thanksgiving giving thanks for their harvest. In the course of time the celebration became more secular and civic in function.

Today, Thanksgiving is the occasion to share and give thanks for a harvest made with modern means of production and distribution. It is a special a day where a great number of people travel to congregate with family, friends and strangers, for the purpose of sharing a meal.

Commensality, or the fellowship at the table sharing a meal, resonates with people from varied cultures throughout history as a ritual that binds a group together. As such Thanksgiving connects each and every group together in a civic union celebrated nationwide. It is a civil religious feast to give thanks for the material benefits and security shared by the citizens.

Regardless of the popular misconceptions of what is religion or religious, Thanksgiving is a civil religious holiday. It is a ritual that has been celebrated throughout history by the American people to give thanks for a harvest that symbolizes an American political Union.