Since 1944, the US dollar has been considered the most powerful and trusted currency all over the world. Such authority eventually allowed it to become a central agent of world trade between the states and an official currency to secure the world financial reserve (Siddiqui, 2020). However, over these years, the power of the dollar has repeatedly lost and regained its authority in the international markets, catalyzing financial crises and tendency shifts in terms of investments.
The demand for the US dollar is closely interrelated with the phenomenon of the currency value. As long as there is demand for the currency in the international market, its value remains steady. However, the rapid changes in value rates caused by such precedents as inflation in the second half of the 20th century decreased the dollar demand and undermined its credibility among international stakeholders (Siddiqui, 2020). In today’s context, the establishment of the dollar within international trade has reached unprecedented heights, as the currency is regarded as means of large international trade transactions and financial instruments for large enterprises. Additionally, it is a tool for daily financial exchange on the level of individuals.
Indeed, the position of the world currency in the international market remains rather fragile due to the fact that the smallest signs of financial insecurity may cause chaos and a barely reversible financial collapse. Currently, the US quite frequently exercises its power to impose economic sanctions and borrow money with extremely low-interest rates (Subbarao, 2020). Such a position may result in the reconsideration of the US dollar value in the global community.
In terms of importing and exporting goods, it is evident that the US has an advantage of importing goods at a low price from around the world using the US dollar as a principal currency. However, when it comes to export, few economies are willing to be engaged in buying US-manufactured goods as higher dollar value makes it expensive for them to import American production. The paradigm of the American export economy is not developed. The overall intention of the US-based companies to sell their goods and services abroad presents a challenge for the stability of the US dollar. Potential stakeholders see such an intention as a backup plan for the possible financial hardships in the local US economy (Siripurapu, 2020). As a result, the more companies are willing to export their goods and services, the more pressure is put on the currency value.
One of the most prominent examples of how changing currency values have affected people’s daily lives is the incident of Black Wednesday and the fall of the pound sterling in 1992. The issue concerned the fact the levels of falling of the pound sterling reached an unprecedented rate in terms of European Exchange Rate Mechanism (ERM) regulations. The UK had no other option but to leave ERM, and such an action resulted in an economic crisis caused by the rapid currency value fall and challenging international relations (Roberts et al., 2017). Consequently, the local population suffered from high prices and low wages, as the economy could not afford to import goods, whereas export was not an option in a hostile trade environment. Eventually, this crisis helped the pound sterling to become a relatively independent currency that was able to develop an agile value mechanism around itself.
References
Roberts, R. W., Keegan, W., & Marsh, D. (2017). Six days in September: Black Wednesday, Brexit and the making of Europe. OMFIF Press.
Siddiqui, K. (2020). The US dollar and the world economy: A critical review. Athens Journal of Business & Economics, 6(1), 21-44.
Siripurapu, A. (2020). The dollar: The world currency. Council on Foreign Relations. Web.
Subbarao, D. (2020). The dollar as the dominant global reserve currency: A threat to financial stability? [PDF document]. Web.