How the US Dollar Became the Most Powerful Currency in The World

The US dollar is the most powerful currency in the world economy. Though there are many other currencies across the world that have more value than the US dollar, such as Kuwaiti Dinar, the US dollar is the face of the world economy or world currency. There are around 180 different currencies that are used across the globe, and some of those currencies are used in more than one country. US dollars are used in more than 14 countries across the globe, and not only that, but it is the primary currency of more than 14 countries in the world.

The US dollar we know today was printed around 1914 in the US, but the history of the US Dollar is enriched. In 1785, the United States of America finally adopted the Dollar sign officially.

Why is the USD World's Reserve Currency

The main reason why the US dollar has become the Reserve currency of the world's economy is the timeline when the US dollar we know now started to roll out. 

It was the Federal Reserve Act of 1913 that created the Federal Reserve Bank to control the instability of currencies in the world economy. During that time, the phase of globalization started, and because of different currencies in different countries, it became next to impossible to deal with international projects and aspects. It was the time when the world's currency market or world economy needed a single currency that could be the face of the world economy. On the other hand, in the meantime, the US dollar was the most powerful currency in the world that held the highest value. The US economy was the most flourished across the globe that other countries could look up to.

Now, let's look at World war 2 when the United States was serving as the main supplier of the allied forces. The country was supplying goods and weapons to the other countries of the treaty, and most countries were paying the United States by using gold. As a result, the United States became one of the largest gold markets in the world economy. One thing that should be mentioned here is that it was not only World war 2, but the United States did the same thing during World war 1.

Later, an ally of 44 countries came up with the foreign management exchange system, and they decided that the world's currency would no longer be linked to gold. Instead of that, the currency would be linked to paper money. They also decided that the world's economy could be pegged to the US. This arrangement is called the Bretton Woods Agreement.

This agreement was one of the biggest reasons why the US dollar has become the most powerful in the world. After this arrangement, the US dollar was officially crowned the world's reserve currency, besides the fact that it was the world's largest gold reserve. So, the countries decided to reserve US dollars instead of using gold reserves.

faces on the dollar bill

After they decided to reserve US dollars, it was common that they would find a place to reserve the most powerful currency in the world. It was the time when countries began relying on US Treasury securities. They thought it was a safe place to save a store of currency.

Later, the Vietnam war occurred. At that time, Treasury securities, coupled with the deficit spending needed to invest their paper currency to that, and Great Society domestic programs were also a matter of concern. This was when the world economy flooded with US dollars, and gold became less important than currencies for the first time. 

This was the journey of becoming the world's most powerful currency, and the US dollar is still in that same place. Now, it is the most powerful because it is used in multiple countries, and the currency is accepted in almost every country around the globe, no matter what the local currency of that country is.

The International Monetary Fund (IMF) estimates that 59% of central banks' reserves are held in dollars. Additionally, a large portion of those reserves is held in cash or US bonds like US Treasuries. 

The CMC market also indicates that the US dollar is the 10th strongest currency in the globe, but despite being in the 10th position, it is the most powerful currency.

There are several assumptions on which currency can be the next reserve currency of the world economy. According to most experts, it can be Euro. Though the debate is still going on, it can be said that the change in the world's reserve currency is not happening too soon. The US dollar will also remain the most powerful currency and the most used currency globally in the upcoming years. Also, it is quite clear that US Treasury security is still the safest place to store money or to store the base of the world's economy.

Related article: 13 Fun Facts About Dollar Bills Everyone Needs To Know

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