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How Does the Dollar's Dominance Move the Markets?

  • Writer: Isha V Joshi
    Isha V Joshi
  • Apr 14
  • 4 min read
“Who Controls the Money, Controls the World” - Henry Kissinger.

Source: CEPR



The US Dollar (“USD”) is considered as one of the most powerful and influential currency in the world. They are now considered as world currency dominating almost all the global trade sector, investments and the most important thing which is economic stability. USDs are the backbone of reserves and international transactions, but how did USD gain so much momentum? And most significantly, how did it become a superpower?


This blog will break down everything you should know, also stating how the US Dollars (“USD”) impacts the Currency Market and International Trades.


But before diving into the current scenarios, let's dig into the history first. The story began in the year 1914, When the World War I occurred, during that time money was supported by gold reserves as it was considered as one of the most valuable assets. So, when you print money against the reserve of gold, that system is called the gold standard. The count of money increased at a higher pace than the availability of gold in World War II. Slowly, countries reduce the use of gold which eventually leads to the fiat system. Now, the even bigger question was how will the cross-border transactions work? because, no country was able to trust on any other currency. That’s when USA enters, as stated earlier gold was an important asset and during that time USA had almost 75% of world gold reserves.


In the year 1944, a meeting was held at Bretton Woods, New Hampshire which included all the major economies of the world to agree upon new rules for the international monetary system post-World War II. The Bretton Woods agreement was signed. All the major economies of the world decided that only America will keep gold and print dollars and the rest of the world will trade using dollars. Other currencies also secured themselves again reinforcing its dominance.


In the year 1971, USA abandoned the use of gold standards but still dollar remained a benchmark. Further, in the 1970s the USA struck a deal with Saudi Arabia and other Arab countries to exclusively deal in dollars, this further adds the central role in the global markets. The Federal Reserved (“FED”) also plays a significant role as changes in rates, inflations can also affect dollars adversely thus impacting many economies. Even during major financial crises like financial crisis 2008, covid 19 or any conflict USD remained the most reliable currency.



INTERNATIONAL TRADE MARKET:



In today’s time, USD highlights its prominent role in trade transactions. In India, 86% of invoices are done in dollar. The above figure shows that the dollar invoicing is much higher than the actual trade share. Additionally, US 93% imports and 97% exports are done in dollars itself. The USD remains to dominate, accounting almost 4.7 times its world share in imports.

This statistic shows the wide share of USD in international trade is attributed to its stability and global acceptance, making it the preferred currency for transactions worldwide.


CURRENCY MARKETS:




“The dollar is to international finance what the English language is to international communication.”

The dominance is not only in the trade but also in international finance. According to Bank for International Settlements, 60% of foreign currency borrowings are dominated by dollar. It almost comprises about 59% of global foreign currency reserves as per the IMF report. The widely the dollar is used, the bigger the network it forms. Another factor that dollar comprises is convertibility which makes it easy to use internationally. US is the only one to contribute a quarter of global GDP that is why dollar is bought and sold in nearly 90% of global foreign exchange transactions.




CONCLUSION:


The US Dollars dominance is unlikely to fade overnight, it continues to rule the world economies. However, other countries' dynamics are evolving. They are trying to reduce their dependency on dollars by introducing BRICS common currency. In the 2024 BRICS summit, their discussion continued on creating a gold backed currency, which will be known as “Unit” as an alternative. Though, De-dollarization will take some time as it is deeply rooted in international trade and currency markets. Dollar as of now will continue to rule the world.



By:

Isha V Joshi 

14th April, 2025










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1 Comment

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Mandar Godbole
Apr 14
Rated 5 out of 5 stars.

Excellent 👍 Keep it up .

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