How The U.S Dollar Ascended Throne Of Currencies?
Towards the end of the Second World War and after that make sure the Allied victory met in Bretton Woods Resort in New Hampshire in the United States in 1944, representatives from 44 countries to develop a framework for a global financial system again to avoid the monetary and commercial unrest prevailed in the war years, and was told it was one of the causes.
How the dollar ascended the throne of currencies?
The meeting came out with several resolutions, including:
Shall floating exchange rate that prevailed in the thirties, such as a barrier to trade and investment and the resulting instability system.
Shall calendar currency system with gold (the gold standard), which peg permanently gold was a strict.
If not the currency adjusted their prices freely, it can, there must be a reliable way to make sure that each state sufficient reserves of gold or the dollar to ensure their currencies. It will be to create a fund for liquidity to serve this goal.
-ln There will be a return to economic foundations of bilateral trade agreements held by Nazi Germany and there will also be a return to the policy of imperial preference. A term end of the nineteenth century and early twentieth afternoon and means connecting the empire by imposing lower taxes on imports from the colonies without the other.
It -must be international regulation of the financial and monetary cooperation through international institution.
Under the convention was created the International Monetary Fund to ensure that Member States to the funds to help connect the value of their currencies.
Member States have to contribute to the fund based on the size of their economies and could withdraw from the fund in proportion to the stakes when you need to reserves to support their currencies.
The creation of the fund proposed by the Americans a way out to solve the liquidity problem
Exchange rate stability:
Member States approved between 1945 and 1971 to maintain their exchange rates against the dollar at the time of an ounce of gold was worth $ 32.
As for the United States it has been linked to the value of its currency with gold, but I got the privilege to change the value of the dollar for the amendment is necessary in the balance of payments after the International Monetary Fund.
This system is known as the Bretton Woods system lasted until 1971 when the US government decided to suspend the convertibility of the dollar reserves of other countries of the dollar into gold.
Since then Member States of the Fund has been free to choose any system for the pricing of its currency against other currencies, except for resorting to gold.
State and preferred this system either because it allows them to print more banknotes for domestic use or because he does not have enough foreign currencies to buy gold.
According to disengage this has become the currency move freely, or the so-called float, and can also be linked to another currency or basket of currencies, and the State can adopt the currency of another country, or to contribute to a single block of currencies with other countries.
The uncoupling of the dollar reserves of gold in 1977
How is the pricing currency:
After the disengagement between the dollar and gold in 1971, the world entered the currency float stage in the sense that the value of the currency can increase or decrease each day from the previous day.
But what factors determine the rise or decline in value of the currency?
The answer to that is to buy from countries all over the world currencies of other countries.
The US dollar derives its strength from the volume of demand to buy it to use a reserve currency or to pay for trade, and if investors stopped buying the dollar, its value goes down sharply.
Since abandoning the gold standard for states its gold reserves fell to some extent, it has been replaced by the currencies of other countries such as the dollar and others.
Reserve support currency
The importance of the countries reserves of foreign currency from the local currency support and secondly to repay international debts.
Any state retain ever-growing of any foreign currency against which you want to determine its currency’s exchange rate. For example, if you specify a country of its currency exchange rate against the dollar by forty pounds it must keep one dollar for every forty pounds you print, which means that it must retain reserves of foreign currency are sufficient to convert all of the local currency on the basis of the specified exchange rate.
In other words, if we assume that the country has four trillion pounds astronomical keeps the price of its currency by forty pounds to the dollar, it must retain a hundred billion dollars of reserves.
The exchange rate is determined for one of the three systems by a fixed and floating and floating under control.
In the case of floating exchange rate is subject to supply and demand. In the other two cases, the government or the central bank determine the exchange rate.
There is no official name for the global particular currency. The US dollar has been used as a private, and the pound sterling, euro and yen global currencies.
And because of the large size of the US market as a trading partner, buys many countries or reserves in dollars to pay off its debt to the United States and many of the states retain up to an additional gold dollar.
Another reason for the expansion in the use of the dollar that many of the goods traded globally the prices are priced in US currency. That means that the volume of trade dollar makes US currency first currency in the world for trade and reserves.
In contrast, what makes the currency less attractive to investors, the economic situation of the state, along with the public budget deficits and the inability of the trade balance and balance of payments and the size of the debt.
Obey Federal Reserve printing money amounts they want.
The freedom to print money:
State can print the cash amounts that you want, but in order not to eat the cash value of inflation the central bank supervises the amount of money supply.
In the case of the United States, the Federal Reserve sets interest rates on loans to banks and prices, and on the interbank rates, and makes sure that bank reserves to cover its accounts, and watching the cash transfer between banks and other institutions and transfer of funds from one currency to the other operations.
But increasing the deficits governments pay as is the case for the United States to ask for more loans from the Federal Reserve at specific benefits means printing more money, which threatens higher inflation and currency devaluation when the repayment of loans.
In the absence of buyers of government debt, the dollar may deteriorate, which could push banks outside the United States to sell the dollar for compounding the crisis.
This is the currency used by the International Monetary Fund and some international organizations also used by some states to link their currencies are used to evaluate some of the world’s financial instruments.
SDRs have been proposed at the end of the fifties of the last century, but the IMF issued at the end of the sixties.
The International Monetary Fund has resorted to SDR substitute for gold and silver in large global transactions.
With limited amounts of gold in the world and the growth of the economies of the Member States in the box, there was a need to increase the unit used as a basis for evaluating the transactions.
The fund SDR version only when approved by 85% of the members of the Fund.
This mechanism gives the United States (which has more votes according to the size of its trade with the world) to object to the issuance of these rights feature. The United States thus ensuring the advantage of the dollar on the global level.
The SDR version only twice in the history of the fund, once they are released for the first time and the other in 1981 to become the size of 21.4 billion (about $ 32 billion according to current exchange rates).
It has been allocated Special Drawing Rights to all 144 Member States because many other countries joined the Fund after 1981.
We must SDR countries issued in proportion to its stake in the fund. As the stakes in the fund depends on the overall GDP, the rich countries is accounted for by a majority of SDRs.
Can SDRs to replace the dollar as a global reserve if Member States agreed on it. This means new rights withdrawn and allocated to the states version.
It is noteworthy that the volume of global reserves of currencies arrived at the end of 2008 to $ 6.7 trillion.
China supports and a group of the General Assembly of the United Nations experts private global financial reforms, the idea of a global currency reserves.
Dollar contribution to the SDR basket up 44% versus 34% for the euro and 11 percent the yen and 1% for the pound sterling (French-archive)
How do you SDR
And rely SDR value on the price of a basket of currencies the dollar and the euro, yen and pound sterling.
And the revision of the composition of the basket by the Board of the International Monetary Fund managing every five years to reflect the relative importance of these currencies in the world trade and financial systems.
The last time the SDR is the calendar year 2006. The effect of this period until 2010.
According to this calendar, the dollar contribution in the basket up to 44% versus 34% for the euro and 11% for the Yen and 11% for the pound sterling.