U.S. Dollar: Global Benchmark Currency

The first US dollar was issued by Federal Reserve of America in 1914, under the presidency of Woodrow Wilson. The dollar officially became the world’s reserve currency since the six decades. The currency of US became powerful after the trading of Allies in the World War II. The US got paid in gold and finally became the world’s largest holder of it. After the end of the war, the countries linked their currencies to dollar which links to gold. Thus the gold standard ended but the status of dollar remained. Therefore to this day, 61% percent of the foreign reserve banks are denominated to U.S. dollar. And 40% of the world’s debt are in U.S. dollar.

The Bretton Woods Agreement:

The Bretton Woods Agreement was created in a 1944 conference where all the related nations in World War II were involved. The agreement said that all the countries promise to maintain the fixed exchange rate between their currencies. It established a new monitory system and replaced gold standard with the U.S. dollar as the global currency. Therefore America became the dominant power in the world economy, and was the only country holding ability to print dollars. It also brought about the creation of International Monitory Funds (IMF) and the World Bank.

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

According to the Bretton Woods Agreement, U.S. dollar was officially crowned the world’s reserve currency. So the countries started to gather U.S. dollar reserves instead of gold reserves. But now they needed to store their dollars, thus the countries started to buy U.S. Treasury securities which they considered to be safe place to store money. And now all trading and transactions are made in dollars.

The dollar successfully maintained its power until 2020. Due to COVID-19, America lost it’s much of the power in economy. The U.S. currency is near its lowest level and has decreased 11% from its peak.