At this juncture, I should say that the Dollar is the World Reserve Currency. It’s “King Dollar”.
The crowning of King Dollar officially took place towards the end of WWII with the Bretton Woods System (on which, more later). But in reality, it was a process that was taking place early on in the 20th Century as the British Empire was waning. And traces of this can be discerned stretching back into the 19th Century.
Prior to the Dollar, Sterling held this title and did so throughout the 19th Century.
Prior to the UK, it was France who had the WRC position.
If Spiderman were to be put in a climbing competition, what would happen? He would probably win. Or at least he should do. The result should be a forgone conclusion. Spiderman was an ordinary human called Peter Parker until he was bitten by a radioactive spider and then came to get superpowers. His superpowers put him above all others.
This situation is not dissimilar to a country that has the WRC. The WRC gives a currency superpowers - superpowers that are hard to detect by first appearances.
The WRC is important because it artificially raises the status of the currency above all others. Relative to other currencies, it automatically ranks the highest. It ensures that the currency of that country is preeminent in the world.
How does the WRC confer benefits?
The answer has to do with international trade. International trade is conducted in the WRC. Right now, that’s the Dollar. In order to trade internationally, all countries are obliged to hold Dollars in their reserves. 60 % of foreign exchange reserves are held in US Dollars. China holds the highest reserves of the US Dollar.
Moreover, all international contracts are written in Dollar terms.
Basically, the WRC status (artificially) increases the demand for the Dollar and this therefore, consequently (artificially) increases its value - where otherwise the value of the Dollar (in relation to other currencies) would be lower.
What benefits does it bring?
It confers incredible (macro economic) benefits to the country that holds it. But the WRC status doesn’t just ensure dominance in the financial world. The effects are widespread and far-reaching.
It has allowed the citizens of the USA to have a higher standard of living than the rest of us. A strong dollar means greater purchasing power.
By way of example, an American can travel across the border into Mexico on holiday and live very well because strength of the $ compared to the Mexican Peso. Conversely, a Mexican travelling to the America would find everything in the US very expensive.
The WRC has also allowed the USA to live beyond its means. It’s like having free use of a Platinum Credit card for the entire country.
The WRC is one of the key elements that has enabled the US to dominate not just all the other currencies of the world, but world affairs in general. Remember, … money is a tool.
Wise up and rise up.
