Decline of US Dollar

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For more than sixty years the United States dollar has been the central reserve currency for the world. A reserve currency, also referred to as an anchor currency, is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves (Carbaugh, 2011). As the world’s reserve currency, the U.S. dollar is used throughout the world as a medium of exchange and is used as the global currency for products traded within the global market. In recent years the status of the U.S. dollar has been contested by a select few around the world. Leaders are unconvinced about the future of the United States economy as their deficits are exceeding record highs. The following analysis will discuss the history of the world reserve currency, how the U.S. dollar became the controlling currency and the benefits the U.S. has experienced as a result of having the controlling currency. Presenting analysis will also discuss the cause of mounting concerns over the future of the United States as well as the effects if the dollar was to lose its status as the world’s reserve currency. Finally, alternatives for the dollar will be evaluated as well as what the United States can do to maintain the standing of the dollar.

History of World Reserve Currency

During the 1800’s and the first half of the 1900’s the British Pound served as the foremost world reserve currency. Due to WWII Great Britain accrued a high amount of debt and lost its status as the world reserve currency. As the British Pound was decreasing in value, the U.S. economy became stronger after the war due to a considerable inflow of Gold into the states and rapid economic development.

After WWII the international finance system ...

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...ronted with an increasing deficit that should not be continued for an indefinite period. The deficit carried by the United States has been scrutinized by global leaders who are pushing for the dollar to be replaced as the world reserve currency. No matter what policy changes are made, any change will have a negative impact on the United States economy. The United States has no lived within its means for several decades, which is the direct cause of the large deficit. Instead of continuing to ignore the deficit it is time the United States takes responsibility for their actions and faces the consequences. The first step would be for the United States to stop using stimulus packages and bailouts to intervene with economic cycles. The citizens of the United States do not want to experience another Great Depression, but this may be the best option at this time.

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