The stock market crash of 2008 sent shockwaves across the world’s economies, leading many to speculate about the future of American financial policy on the global stage. In the eyes of many experts at the time, the U.S. dollar was especially at risk of losing its decades-long dominance. After all, the inferno of the financial crisis spread so fast because many nations measure their own currency against the dollar. When its value plummeted, so did countless other currencies.
The debacle led to a drastic loss of faith in the almighty dollar. Leaders in Beijing, Moscow and other developed nations vowed to find a replacement for it, fearing that America’s ailing economy would continue to infect the entire world if the dollar remained dominant. Emerging economies echoed the sentiment as well. With its reputation suffering and value dropping fast, the outlook for the greenback was not looking good.
Fast forward six years later, however, and the dollar remains the world’s most powerful banknote. In fact, its value compared to other currencies recently hit a four-year high as most nations continue to depend on the dollar for their reserve cash. What’s more, policymakers who initially called for a change have more or less ignored their own advice. China, for instance, now holds $1.27 trillion in U.S. Treasury securities, a 75 percent jump from 2008. While the dollar’s resurgence can be partly credited to robust economic growth, the simple truth is that no other currency could feasibly replace it. While the euro was once tapped as a possible successor, the currency lost many supporters amidst the chaos of the continent’s sovereign debt crisis. In terms of the future, China and Russia plan to increase the value of their currencies by conducting more trade in yuan and rubles, respectively. The dollar could take some damage if more nations adapt similar policies, but even then the effects of those plans would not be felt for many years. So at least for the moment, the color of much of the world’s money will remain green.
Questions:
- Why is the dollar considered the world’s most trusted currency?
- With the value of the dollar strong, will U.S. exports be helped or hindered?
Source: Michael Schuman, “Revenge of the Dollar,” Time, November 6, 2014. Photo by: Kenny Alexander.