THE EDITOR: A reserve currency is a medium of how a powerful nation does high volume of international trade. Central Banks hold these in large quantities specifically for trade so as to avoid going through the foreign exchange markets or alternatives, thereby transactions will be faster and cheaper.
The downside for a powerful nation is if their currency was removed as another nation’s reserve, the value will be reduced but increased for the currency of the nation which replaces it.
The only prime advantage would be that exports for the “losing” nation would become cheaper and therefore increases sales over competitors. The removal of a reserve currency will not be overnight. If such happened, a sure, sharp reduction in assets will occur to nations that are replacing a reserve currency.
Discussions still abound that the US dollar will be removed as a reserve currency. The ramifications of the Ukraine and Russian conflict are the genesis of the schism.
This coupled with China capitalising by a more massive expansion in international trade, has seen its currency the Yuan gain more acceptance and therefore utilisation. The Yuan has replaced the US dollar as not only the most traded but is steadily replacing the Euro. It is now Brazil’s second reserve currency.
Saudi Arabia, seeking more economic independence from the US, is partnering with China to build an oil refinery. This means they potentially might become a new member of the BRICS (Brazil, Russia, India, China & South Africa) trade bloc.
The just aforementioned bloc is also advancing in creating its own currency. Just as horrifying for the US, the rupee (Indian dollar) has seen more usage by a score of countries in an attempt to liberalise international trade.
The United States international financial domination began 80 years ago with the Bretton Woods Agreement. Other nations fixed their currencies to the US dollar. Contrarily, the dollar was fixed to gold.
After the Bretton Woods collapse, the US abolished the gold standard and was instead backed only by consumers’ confidence.
So for more than 50 years, there has been nothing tangible that is backing the US dollar. This hasn’t stopped as some countries’ currencies remaining fixed to it while others elected to float against it.
Aside from finance, politically the US maintains power via its currency.
Our nation had to seek the “blessings” of the US to engage in the Dragon Field gas deal with Venezuela.
Had we proceeded without their consent, TT would have been assaulted with various sanctions.
The South African currency – the rand – fell in value due to an explicit grievance by the US over that nation's alleged arms deal with Russia.
Worldwide, migrants regardless of status, always have quantities of US dollars such is the confidence and trust of people in that currency, which remains unwavering. This exists especially in unstable nations where people find themselves as refugees or asylum-seekers elsewhere, and as a resource or savings, a powerful currency is vital.
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