Who Enthroned The Dollar?

Who Enthroned The Dollar

Have you ever asked why the United States Dollar is the world’s reserve currency? 

Perhaps you may wonder what is so special about the US dollar. This article will enlighten you on what you need to know about the United States dollar and its rise to prominence in the world’s economy. 

The Federal Reserve Bank of America was created in the year 1914. The first US Dollar of the United States was as well printed this same year. However, in 1944, the Brenton Wood agreement came to a consensus and enthroned the US dollar the world reserve currency.

World Reserve Currency Before the Dollar

Before World War 1,  the British economy was the largest in the world. Britain served as the world center of commerce, and trade was carried out in British pounds. However, in other to ensure stability in the exchange of currencies, the Gold served as a central currency. Every currency including the pound had to be pegged to the value of Gold. 

During World War I in the year 1914, many countries dropped the Gold standard. This was because the military expenses were paid in paper currency and not Gold. As a result,  the currency of several countries was greatly devalued. Not long after, Britain which held on to the Gold standard began to witness economic degradation and was forced to borrow. 

How Dollar was enthroned

After 5 years into World War I, Britain was forced to neglect the adopted Gold standard. As a result of this, every merchant who traded in pounds was affected. The dollar then became the next world currency reserve. 

However, it never became effective until 1944. This was when the major countries around the world agreed to peg their currencies to the value of the dollar. It was called the Brenton wood agreement. 

During World War II, the United States was the major arms supplier to the allied countries. To the advantage of the United States, the payment for arms was done in Golds. Consequently, the United States became the custodian of two-third of the world’s gold. 

Therefore, to ensure the growing exchange will be advantageous to all participants, 44 countries were asked to send delegates to Brenton wood, New Hampshire. And, since the United States is the major holder of Gold, it was agreed that all currencies of the world should be pegged to the Dollar.  Meanwhile, the value of the dollar was pegged to Gold. 

Not only that, the central banks of each country are expected to maintain a fixed exchange rate between the dollar and their currencies. However, when the currency value of such a country becomes too strong or weak against the dollar. Such countries can sell or buy their currency in an attempt to regulate the money supply. 

To consolidate the agreement made at Brenton wood the International Monetary Fund (IMF)  and World Bank was instituted.  

Summary

Because the US had two-third of the world’s gold reserves they had stronger bargaining power and as such other countries had no choice but to submit to the US dollar.

As much as this gave the United State a major advantage over other countries it doesn’t necessary means there is no hope for others. There are currencies that are stronger than the United State. What matters is the economic health of your nation not the currency rate against the US dollar. 

Let us know what your thoughts are about the enthronement of the US dollar. 

References 

  • Investopedia- How U.S Dollar became the World’s reserve currency 
  • Transfin– How U.S Dollar became the world strongest currency 

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