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Additional Currencies Could Support a Stronger Global Economy

Updated: Apr 27, 2023

For decades, the US dollar has accounted for over 80% of all international transactions, making it the most significant reserve currency in the world.

The US has benefited greatly from this status, including being able to borrow money at lower interest rates and continuing to run a trade deficit without the dollar's value being negatively impacted. The drawbacks of this dominance include lowering the competitiveness of US exports and turning the Federal Reserve as the world's last-resort lender in times of crisis.

Despite the US dollar's long-standing dominance, developments in the global economy may cause the currency market to change. Although some people think the euro could compete with the dollar, it hasn't always proven successful. The Chinese yuan is another competitor, but it only makes up a small portion of global trade at the moment. Over the next few years, other currencies and elements such as property rights and capital market protection will also affect how currencies are used.

The US dollar's status as the most major reserve currency presents both significant advantages and unique problems to the US economy. Even if there may be rivals, the dollar's dominance is not likely to be threatened in the near future. To defend its economic interests over the long run, the US could keep an eye on the global economy and make any necessary adjustments. Put simply, the US dollar won’t go down without fighting

This is while international transactions are prevalent in today's global economy, and the currencies used in these transactions are essential for facilitating international trade. Although the US dollar has long served as the main reserve currency, there is an increasing demand for other currencies to be used in international trade.

The diversification of currency risk is one of the most crucial justifications for using multiple currencies in international transactions. Relying primarily on the US dollar for international transactions exposes companies and nations to exchange rate swings, which can have a considerable negative influence on their financial results. Businesses and nations can reduce risk by employing a range of currencies.

The promotion of economic stability is another reason why having several currencies available for international transactions is crucial. The strength of one currency can have an effect on the state of the entire economy in a globalised setting. The risk of economic instability brought on by the volatility of a single currency is reduced by the availability of multiple currencies for international transactions.

A third justification for using more than one currency in cross-border transactions is that it promotes competitiveness. Due to a lack of competition, the dominance of the US dollar may result in more expensive and inferior goods. Businesses and nations have more options when there are multiple currencies accessible for cross-border transactions, which can result in better prices and higher-quality goods.

Increasing the number of available currencies can also promote economic growth. The usage of more currencies may result in higher trade between nations, which may boost economic activity and create jobs. The world's population may see higher living standards as a result of this increasing economic activity.

For fostering economic stability, fostering competitiveness, and fostering economic growth, additional currencies must be available for cross-border transactions. Although the US dollar has long served as the main reserve currency, it is crucial to diversify the currencies used in cross-border transactions to reduce currency risk and support a stronger global economy.


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