How the U.S. Dollar Became the World’s Reserve Currency

Posted on July 25, 2022Comments Off on How the U.S. Dollar Became the World’s Reserve Currency

Today, the United States of America is considered one of the world’s largest leading superpowers.  From its powerful military to its dominant economy, America has shown its power in many ways.  So, how did the US get there?  One of the main reasons is its currency.

The US dollar (USD) is the world’s most powerful and strongest currency.  And this is not something new because the dollar has always been accepted for trade throughout the globe for a long time.  For the first time, the dollar was printed in 1914 and had a deep-rooted history.

The USD plays an important role in the global financing system.  This is the only currency kept by central banks and other major financial institutions all over the globe.  Most of the time, US dollars are used for transactions, investments, and repaying debts overseas.

Not only this, this currency is used for trading vital commodities like gold and oil.  Sellers and buyers of these commodities have to keep large amounts of U.S. Dollars on hand to pay for them.  You can check the USD forecast and learn more about the current exchange rates of different currencies.

So, how did the U.S. dollar become the world’s reserve currency?

Today in this post, we’ll explain how the dollar became so powerful and one of the most traded currencies.  From history to the main reasons behind the conversion of US dollars into the global currency, we’ve included everything.  So keep reading till the end.

Let’s begin.

History of the U.S. Dollar

It is documented that for the first time, Massachusetts Bay Colony used paper currency in the United States of America.  These currencies were the colonial notes which dated back to 1690 and were majorly used to fund military operations.

In 1776, the first $2 bill was introduced just nine days before independence.  Around nine years later, in 1785, the dollar sign was officially used in the U.S. In 1863, two government agencies were established: the National Currency Bureau and the Office of the Comptroller of the Currency (OCC).

Let’s talk about the main reasons why today, the US Dollar became the global currency.

The Bretton Woods Agreement

After World War II, 44 allied countries agreed and created the Bretton Woods agreement to fix the exchange rate and avoid a financial crisis.  This agreement in New Hampshire is about other countries backing their currencies with dollars.  At that time, the US held most of the world’s gold supply.

The Gold Standard

The Vietnam War and the Great Society domestic programs were financed by America.  However, because of this, the US financial market was flooded with paper money, depreciating the dollar’s value.  Later, President Nixon decided to sever the tie of the US dollar to gold.

According to x-rates.com, on July 20, 2022, the US Dollar exchange rates of the top ten currencies are:

  • US Dollar – 1.00 USD
  • Euro – 0.975121
  • British Pound – 0.832719
  • Indian Rupee – 79.967546
  • Australian Dollar – 1.445955
  • Canadian Dollar – 1.286591
  • Singapore Dollar – 1.391696
  • Swiss Franc – 0.96813
  • Malaysian Ringgit – 4.450931
  • Japanese Yen – 138.146319
  • Chinese Yuan Renminbi – 6.750778

Final Words

Now you know how the U.S. Dollar became the world’s reserve currency.  US dollars are used everywhere, from trading various commodities to investment and transactions.  You can also check the USD forecast for the latest updates.

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