The U.S. dollar was previously considered one of the world’s premier currencies, as before September 11, 2001; the risk of severe instability was very low in the United States. The United States is the safest and most developed market in the world. The dollar as the world’s premier currency has permitted the United States to attract investment at a discounted rate of return, these results to seventy- six percentages of the global currency reserves held in dollars. (Forextraders, 2013). Also, the dollar is the world’s dominant factoring currency; this also contributes to the dollar being the reserve currency. The coming out and surfacing of the euro has exposed and endangered the U.S. dollar’s position as the world’s premier reserve currency. Various central banks are spreading and diversifying their reserves by reducing their dollar holdings and increasing their euro assets. Also, China recently proposed replacing the U.S. dollar with a basket of currencies to be used as its reserve currency. The currencies that China suggested are the International Monetary Fund’s Special Drawing Rights. Unfortunately, the conflict between the United States and Russia is drawing Russia towards China. Many BRIC countries use other currencies for their trade, reducing the value of the dollar in the world trade.
The impact of the U.S. dollar
The United States is the largest trading nation in the world, exporting and importing more goods and services more than any other country. Most of the people are concerned about the extensive levels of the international trade hurting the U.S. economy (Manzella, 2002). The foreign exchange market is the exchange of different currencies. For instance the price of the U.S. dollar rise and fall beside other currencies with varies in demand and supply.
In conclusion, the two factors that determine the potential of a currency to be a global currency is; power, and stability. Although, the U.S. dollar has lost some of its position as a reserve currency in some countries, the dollar remains to be the leading currency of value in the world.