Why does everyone use dollars?
I am sure everyone reading this article has wondered “Why does everyone use dollars?”. What is the reason trades everywhere around the world are banked by US dollars instead of Euros or Yuan? There are various theories surrounding this question and one of the most popular answers is that it is because the US is the most powerful nation on the planet. However, this is not the case at all since Cina has one of the biggest GDPs on the planet and its largest population by size. The real answer to this question is much more complicated and cannot be answered with a single sentence.
In 2019, an estimated 88% of all global trades occurred with the use of US dollars. No currencies came even close to the amount with Euros in the second place only reaching a measly 30%. This gives US tremendous power over countries all around the world that import and export goods. For example, the commodities such as gold, wheat, and metals are all priced in US dollars regardless of whether they come from Vietnam or from Greece. This is why some countries are developing other transaction methods in order to chip away at that power the US has.
The dollar really started booming after WW2, when all the countries were looking to rebuild their economies and the dollar was the most stable currency at that time. This really kicked off when in 1944 a conference participated by 44 different nations decided to peg their own currency to the dollar and the dollar was pegged to Gold. Even after the USA decided to abandon the good standard the other countries never decided to remove the connection to the dollar due to how easy it is to trade with it. The dollar is one of the easiest currencies to liquidate on the planet what I mean by that is that dollar is the easiest to buy goods and services with.
To put this into perspective imagine a juice-selling company named “Company Juice”. In our scenario Company, Juice is based in Venezuela and its customers are based in Spain. In order for them to trade they use Dollars via a bank called “Correspondent Bank”. Correspondent banks are based in the US and have oversight over every transaction that is made through US dollars. The use of these correspondent banks means that any transaction technically touches US soil which gives it huge power over other foreign countries.
An example of the US using its power of currency was after 9/11. They changed their policy laws on trades with the main goal of cutting funding for these terrorist organizations. As the Wall street journal put it “The U.S used its control of the dollar to increase surveillance of global money flows and curb financing towards bad actors”. It did this by introducing trade bans on its rivals such as North Korea, Cuba, and now Russia.
Though not following the policy rules given by the US will have big consequences on your economy, some EU countries have tried to make alternative solutions. Some of the EU countries oppose the sanctions that were given against Iran. This is why the EU is developing a system backed by the Euro so they are able to trade with each other without the help of the dollar. Though the dollar has the most influence today, the same might not be able to be said for tomorrow.
You can find this article on my blog: https://thinkwriterise.com/why-does-everyone-use-dollars/