Systematic international trade traces its roots back to the mighty trade rich Roman Empire. In fact the word “pay” originates from the Latin word “pacare” which originally meant to pacify using an appropriate unit of measure that appeased both parties involved in the said transaction.
Over two millennia later, imperialist Britain found itself in a similar position with the pound sterling flowing freely across its multiple colonies as the de facto mode of payment for all trades that took place as the colonies were barred from exporting goods. The failure of the gold standard and the WWII victory paved way for the USD. Post WWII, in the face of a diminished Britain, a shattered France and a devastated Germany, US government adopted protectionist policies by undervaluing the dollar to boost international exports while imposing high import tariffs. This allowed the USD to establish itself as the primary international currency.
Along the way, starting in the 1970s, Japan had displaced Germany as the second largest economy with roaring international exports resulting in vast trade surpluses and enormous foreign exchange reserves. This phase fizzled out in the 1990s as the bubble of the over-appreciated Yen burst, moving Japan into a phase of stagflation for the next two decades. Even so, the Yen at its peak only accounted for 9% of the world’s currency reserves as over 90% of the Yen bonds were held domestically.
The rise of the US Dollar, apart from the previously mentioned global events was fundamentally sustained as a result of the trifecta: highly developed financial markets that operate transparently, high levels of liquid easily interchangeable assets and backing by a relatively stable business friendly government. Undo...
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... own destiny while treading the path with utmost dexterity and diligence.
This brings me to the original question: Will the Renminbi emerge as an International Reserve Currency? My answer would be a definite, emphatic yes! As of 2012, China is at step one in its plan of internationalizing the RMB by establishing itself as the trade settlement currency following which it aims at becoming an investment currency before finally becoming a true reserve currency. However, the time and global conditions in which that might happen are highly uncertain, maybe in 20 years or even 30 years. Even, so it would be an addition to the dollar and the Euro and not a replacement. All of this is true, assuming China continues on its path of growth, liberalization and internal reforms without creating any negative shockwaves. The world watches as the crouching dragon raises it head.
Doc. Box 3 mentions confucianism. Rome worships Christianity in the world. Hinduism is technically Buddhism. These reasons explain that trade was never JUST physical items, but ideas and beliefs as well.
Bentley, J., & Ziegler, H. (2008). Trade and encounters a global perspective on the past. (4th ed., Vol. 1, pp. 182-401). New York: McGraw-Hill.
Japan has moved on since then. They now have become one of the world's wealthiest countries and one of the United States' most powerful allies. Although Japan was hurting for a while, they overcame their struggles which is testament to how strong the people of Japan are, just ask Tamiko Tamonaga and Sachie Tashima. Word Count: 888
...such methods have led not only to intervallic spikes of high inflation, disastrous devaluations and financial troubles, but also to enduringly elevated nominal and real interest rates. The possibility of devaluation precludes integration into the global financial markets. The power to devalue has not catapulted exports over the longer term. Actually, it is just the opposite. It has seen to locking developing nations into low valued-added products exposed to wide and unpredictable price shifts. The country of El Salvador calculated the pros and cons of having domestic currency through two consecutive administrations and, ultimately, made the choice to dollarize based on their critical examination. Some countries may discover it practical to conduct their own analysis, and others may find it valuable to embrace the monetary services provided by the dollar global economy.
The purpose of this is to draw attention to the invisible government which controls the United States. One of the means of control is the Federal Reserve System. Many of us have seen the recent decline of the dollar in the news. We will address this in terms of the Federal Reserve System’s control over the value of the dollar. Much of this is a concentration of quotes by noteworthy individuals such as Economists, Presidents, and Congressmen.
During the Revolutionary War there was much need for a strong centralized government that would have been able to collect taxes. The states were able to issue currency and the government accepted this in exchange for specie. Specie was very hard to come by in the colonies and most states relied on foreign currency such as Spanish coins to back up their currencies. The Continental Congress issued a Continental Currency in 1775, but due to lack of faith in the currency, it rapidly fell in value and prices skyrocketed. They were abandoned in 1781. If it weren’t for a massive loan from the French, the war would have ended due to bankruptcy. During the time period of the Articles of Confederation, each state was able to issue it’s own currency. The lack of national currency in the United States lead to exchange problems between the states, and also made trading difficult for the U.S.
1) Japan still has the largest foreign currency reserves in the world even after years
Roosevelt cut the dollar’s ties with gold in order to allow the government to pump money into the economy and lower interest rates. This was ultimately to help get the U.S. get out of the Great Depression and deter people from cashing deposits and depleting the gold supply. In 1946 a majority of the world’s central bankers met to create a new global monetary system that would facilitate international trade, known as the Bretton Woods System. This allowed governments to sell their gold to the U.S. treasury, which at the time controlled two thirds of the worlds gold, at a set price of $35/ounce. There was a transition from gold being the base reserve currency as the U.S. dollar gained momentum and became the international reserve currency being linked to the price of gold. The U.S. dollar was chosen since the U.S. economy was the global leader in manufacturing and held the majority of the world’s gold and was the only currency still backed by gold. Being the reserve currency meant that other countries would maintain a healthy supply of dollars creating a stronger demand and helping support its
The Gold Standard, 1890-1926.” Journal of Global History 3 (2008), 313-335. Eichengreen, Barry. A. Globalizing Capital: A History of the International Monetary System. Princeton, NJ: Princeton University Press, 1996. Galbraith, John.
The end of the World War II marked the beginning of a new era for the world economy. The Bretton Woods System refers to an agreement made at an international conference between 44 nations in 1944 at Bretton Woods, New Hampshire, United States of America (hereby U.S.) on the 22nd of July 1944. It was aimed at maintaining stability in the monetary system in the post World War II period. “In an effort to free international trade and fund postwar reconstruction the member states agreed to fix their exchange rates by tying their currencies to the U.S. dollar.” The fundamental of this system was liberalizing trade policy and promoting free trade. The U.S. dollar was linked to gold as a show of its dependability in the eyes of the rest of the world, $35 equaled 1 ounce of gold. They followed an adjustable fixed exchange rate (1% band). It set up the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which is a part of the World Bank today. Member nations monetary contributions to the setting up of these institutes determined their number of votes as well as their economic prowess
The value of the US dollar relevant to other currencies is a major consideration for the Federal Reserve. If they prevent large changes in the value of the dollar, firms and individuals can comfortably plan ahead to purchase or sell goods abroad.
Trade provides a primary method of connecting technology to the world. Initially trade was exchanged as items of barter. Cattle, shells, crops, salt, and other items served as a means of providing a fair exchange of goods between parties. The invention of currency has much to do with the needs of trade. It is impractical to ferry a heard a cattle to a place of sale in order to buy the good. However money is more portable than livestock and many other items of barter and helped ease the trade process (Ehrlich, 2000). The importance of trade to culture led to a streamlined process with the invention of currency. While items of barter have value that is tangible, such as food produced by crops, modern currency is only valued by the culture since a government body guarantees it. As a result of the governmental backing, currency can be used a meaningful method of exchanging value. Money that does not contain precious metals is simply a symbolic way of representing value. A culture recognizes the currency as representing value and can be used as an effective accounting system for trade. Additionally, the influence from the cultural value of trade translates into placing less significance on the intrinsic value of the currency itself and instead considers what convenience the technology can provide to improve trade.
...y equals the United States. Hence, in this new world of international monetary structure U.S. needs to be very careful about its economic policies or it may lose its dominance over the monetary markets internationally. However, in examining the U.S. economy in the recent past we realize that the trouble has already begun for e.g. The current account deficit jumped by about $100 billion annually during the three-year period 1998-2000, nearing $450 billion or about 4.5 percent of GDP in 2000. The net international investment position of the United States reached a negative $2 trillion at the end of 2000. Hence it is quite possible that in near future the dollar may experience some sharp depreciation, the evidence of which is reflected in the excel sheet attached.
The America motivates other countries actively to fight for access on the market of the USA and strengthening of the positions in this market. The USA is made only by 5% of the population in the world, but the economy makes more than one quarter of economic production (US market economy). Many countries want to be in cooperation with the USA. America is the most demanded and the confidential country for different transactions. Dollar serves as a uniform standard on which all currencies of the developed countries equally. In practice all participants of international payments are guided by dollar. Because of each country seeks to be in cooperation or rivalry with this economic power to have the relations with the world and international community.
Daily in the USA about 38 million banknotes of various face value for total amount about 541 million dollars are issued (Facts about USA money).Dollars involve deep consequences both for the USA, and for other countries. Increase of its course relatively reduces the volume of export revenue in dollars, quite often involves more considerable, than change of an exchange rate, falling of the world prices, especially on raw materials. On the contrary, decrease in a dollar rate serves as the powerful tool promoting growth of the American export and a pushing off of competitors of the USA in foreign markets. At the same time import to the USA owing to effect of a rise in prices restrains. Thus, for the USA changes in the exchange rate of dollar anyway bring benefits and advantages.Reduction of leading positions of the USA in world economy is assisted by the international role of dollar which remains the main reserve and settlement means in world monetary system. Foreign currency reserves of the central banks of other countries for 61% consist of dollars, nearly 2/3 calculations in world trade are carried out in dollars; the dollar serves as a measure of value of many important goods (for example: oil) in the world market; in dollars 3/4 international bank crediting is made (Aleksandr Popov). Changes in the exchange rate of dollar involve deep consequences both for the USA, and for other countries. Increase of its course relatively reduces the volume of export revenue in dollars, quite often involves more considerable, than change of an exchange rate, falling of the world prices, especially on raw materials. On the contrary, decrease in a dollar rate serves as the powerful tool promoting growth of the American export and a pushing off...