I am the US dollar - My Ascendency & My Future

A STORY ABOUT ME, MY PAST, MY FUTURE...

"I Am the U.S. Dollar"

"I am the U.S. dollar — the most widely used currency in world trade, global finance, and reserve holdings. Nations, companies, and investors around the world demand 'Me', because I am trusted, stable, and solid, pardon the pun, I am liquid as a currency, which means I can be bought or sold without impacting my price.

• I play a major role in the global economy, Treasury bills, and exports, basically everywhere. I am backed and protected by the largest economy in the world and by the biggest capital market in the USA

• In the area of World Trade & Economics: I’m everywhere. Readily available — you can always find a market to convert or hold me.

• Around 80–90% of world trade is invoiced in 'Me', even when my country U.S.A isn’t directly involved.

• I am also the “reserve currency” - meaning that every country's 'central banks' hold billions of 'Me' in reserves for rainy days and to make their own currencies stable.

U.S. Treasury Bills: My Safe Haven Form

When people want to hold 'Me' safely, they often buy Treasury bills (T-bills) from the U.S. Treasury. Did you know that these T-bills play a special role? Even if people/governments/institutions sell my paper (cash), they often go ahead and reinvest 'Me' in T-bills — & you know what, I am always in demand. I GIVE my country the “privilege” to finance deficits more easily. It means that my country, was & is in the unique position to buy whatever it wanted from the world, pay with its own paper dollars, and never really have to pay it all back — because people actually preferred to keep holding those 'Me'.

"Never really have to pay it all back" - Is a slight exaggeration but points to a defining moment. While we do pay interest on our debt, the continuous demand for 'Me', means that We can effectively "roll over" our debt. When the time comes to pay my debts, my country issues New Bonds, because there is always a market of willing buyers due to 'My' status. It doesn't mean our debt is erased, but it means We don't face the immediate pressure to drastically cut spending or raise taxes to "pay back" debt in the way other countries might need to.

So, How Did I Get To Be On Top ?

I came into being 'significantly', after World War II, through a mix of 'good planning' and 'being in the right place' at the right time. After World War II, my country, the U.S.A was by far, the strongest economy in the world. Europe and Japan were destroyed by the war, but we had all the factories, and most importantly, far more gold than anyone else, and producing about half of all the goods in the world.

In 1944, before the war even ended, countries met at a big conference in Bretton Woods, and because, my country came out unscathed and stronger, they all agreed to make 'Me', the dollar, the center of the world’s money system. They decided that all other currencies would be linked to 'Me' at fixed rates, and 'I' would be linked to gold. This made 'Me' the bench mark, to compare with rest of the currencies in the world.

At that time, my country, planned to play a leading role, but my country didn’t fully realize just how powerful and important 'I' would become later and with that - make them powerful too. Over time, my country came to enjoy what’s been called an “exorbitant privilege” — meaning 'they can borrow more easily', 'import more', and still have the world wanting 'Me'.

From now on, I will refer to 'my country' as USA.

To be honest, USA, at first, started off with the bigger goal to simply help rebuild the global economy, avoid another Great Depression, and stop the spread of communism by keeping trade open and stable. But as the system developed, USA saw just how much demand there was for 'Me' everywhere — and how much influence that gave them over the global economy. While, this part was not fully planned, it became a huge benefit for the USA and we saw means and ways to make the most of it, in various ways, primarily to our benefit.

My birth or RE-Birth, to be more accurate, was partly planned and generally, no one, at the time really expected just how big and long-lasting my role would become. It simply came about because of how the world economy evolved and how much everyone ended trusting the USA compared to others.

My Court: A Hierarchy of Currencies

As in life, with 'Me' being right at the top, an hierarchy was needed to place every other countries currencies at the appropriate level, befittingly called the 'exchange rate'. In simple terms, the rate is/was the price of another country's currency in terms of USD. It's essentially the rate at which we can trade one currency for 'Me' & I have to mention, trade their currency with one-another. For example, if the exchange rate between the 'Me' and the euro is 1.10, it means one unit of 'Me' can be exchanged for 1.10 euros.

This rate was not just picked out of thin air or decided arbitrarily. There was economic logic behind them.

At Bretton Woods in 1944, 'I' was chosen as the world’s anchor currency because 'I', my value, was tied to gold @ $35 per ounce. All other countries then agreed to set their currencies at values relative to gold — through 'Me'. The exchange rates they set were based on the actual economic conditions at that time — especially:

• Depending on how much gold reserves each country had &

• Their economy’s productivity and trade balance after the war.

In this example, Britain's pound had already been trading around $4.03 before the war, when the pound was under the 'gold standard'. A fancy term to describe, that Britain's currency was directly linked to a fixed amount of gold, meaning that anyone would have been given a specific quantity of gold in exchange of the pound. Gold standard was a key measure than.

Likewise, different countries currencies came to be measured against 'Me' and a new world order was born. As the years went by, the system that kept me, fell apart in 1971 because the USA couldn’t keep exchanging 'Me' for gold anymore — there were just too many of 'Me' out there. After that, most currencies moved on to the “floating exchange rate” — meaning their value was decided determined by the constant interplay of supply and demand in the global foreign exchange (forex) market.

The USA decided to run a TRADE Deficit - By Exporting less and Purchasing More.

In order to PRESERVE my Status, USA decided to run a trade deficit, basically, by buying more from other countries & paying them back in Dollars. This strategy worked well for USA, because, people in my country could buy high quality products at low costs. And more importantly, the USA government is/was/ & has-been able to keep its citizens happy, by letting them buy practically anything at very low prices.

At the beginning

At first, keeping 'Me' strong and holding a big trade surplus seemed like the right thing to do, because it kept my country's economy healthy and kept the system stable. But by the late 1950s and early 1960s, the thinking began to change. My country policymakers started to notice that even though the country was importing more than it exported, other countries didn’t demand gold back in exchange for 'Me'. Instead, they just held on to 'Me', or used 'Me' by buying our assets like government debt, U.S. real estate, and corporate shares.

So over time, this clever cycle came into being — the U.S. would print plenty of "Me" [whenever it needed to], use them to buy goods and oil and services from other countries. The countries would then hand 'Me' back to the USA in-exchange for Treasury bills. It allowed us to keep running deficits and still finance our economy more easily than any other country.

If you are interested in more details, you can refer to the link @ : The Fed - The International Role of the U.S. Dollar - Federal Reserve Board :- https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006.html

I would rather enjoy the spotlight, than go through, the serious text and all the data associated with the link mentioned above.

My Future

Now, things are different. After accumulating a VAST deficit over decades, my position as a global reserve currency is being challenged.

My country's Spending has caused it to run very large budget deficits, and has contributed to large trade deficits, without seemingly having a strong plan. It's like a household that keeps borrowing more and more money, month after month, year after year, without truly cutting back or increasing its earnings.

In addition, my government, has to pay interest on its massive debt and that means, there's less money for other things like infrastructure, education, medical or even tax cuts. All this has lead to an 'Erosion of Confidence in Me' and started the process of exploring other alternatives, by diversifying Reserves, such as buying Gold or holding more of Euros. They also started trading in Other Currencies, bypassing 'Me'. And, there's more, an Alternative payment system, without "Me", being a central part of it is being developed.

Emerging countries with growing economies are thinking of ways to use less of 'Me'. Will I continue to enjoy my privilege? I think, I am okay for a decade or so, because the system supporting me cannot be dismantled so easily and so quickly.

"I'm not ready to deal with this right now" . I want to push the issue away and worry later or better still, let those, who gave 'Me' prominence, sweat about it.

Hey, My future, sounds promising, you will see me in my next avatar. It's pure Genius.

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