United States Dollar as Reserve Currency

1871 WordsJun 21, 20188 Pages
In February of 2011, the International Monetary Fund (IMF) shocked the world by calling for the United States dollar to be replaced as the global world currency (Rooney, 2011). In one report, the world’s dirty little monetary secret had been exposed; faith in the US dollar was faltering. Since then, international attitudes toward the US dollar have only gotten worse. With 2013 debt at approximately 105 percent of gross domestic product and a negative outlook rating from Standard’s and Poor, the United States is looking like an insolvent bank no one wants to keep their money in. In addition, the dollar has lost 97 percent of its value since being taken off the gold standard in 1971 (Mack, 2011). This makes holding the dollar long-term a…show more content…
While it is said the dollar is now back by “the full faith and credit” of the United States, this faith and credit is largely treasury bonds, or debt, much of which are held overseas by foreign governments. Ever since the US dollar went off the gold standard in 1971, other countries have had doubts about keeping the dollar as the world’s reserve currency. The first concern was that no fiat currency has succeeded long-term. In a study of 775 fiat currencies (Mack, 2011), there was no historical precedence for a fiat currency that has succeeded in holding its value. 20 percent failed through hyperinflation, 21 percent were destroyed by war, 12 percent destroyed by independence, 24 percent were monetarily reformed, and 23 percent are still in circulation approaching one of the other outcomes (Mack, 2011). The average life expectancy for a fiat currency is 27 years, with the shortest life span being one month (Mack, 2011). It is one thing if an individual country’s fiat currency collapses, but if a world reserve currency collapses, such as the US dollar, the world’s economy will collapse with it. Another issue is the dramatic drop in the value in the dollar. As stated earlier, the US dollar has lost 97 percent of its value since being taken off the gold standard in 1971 (Mack, 2011). Not only does a weaker dollar translate into a cut in the real spending power of American consumers, it makes the dollar a very poor investment for investors and central banks around the
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