by IAN BEZEK
One of the more intriguing financial
trends that gained steam last year was the de-dollarization movement.
This is an effort by a growing number of countries to reduce the role of
the U.S. dollar in international trade. Countries like India, China,
Brazil, Malaysia and Bolivia, among others, are seeking to set up trade
channels using currencies other than the almighty dollar. With so much
of the world economy reshaping itself in the post-pandemic landscape, is
the reserve status of the U.S. dollar going to be the next domino to
fall?
To answer that, it’s important to understand how the dollar got to its current status and why some folks wish to change it.
History of the Reserve Currency
For centuries, the world has had what’s known as a reserve currency. This is the currency in which the majority of the world’s international transactions are handled. Historically, these were the currencies of a series of European colonial powers, including Spain, France and England at various points. These empires often backed their currencies with precious metals, typically gold, in addition to the implicit backing of the state.
Following World War I, the British economy struggled to regain its vigor. Much of the world’s gold flowed from London to New York for safekeeping and speculation in the roaring 1920s U.S. equity bull market. America’s dominant role in World War II further cemented New York as the financial capital of the world, and the dollar as its most important currency. The greenback was formally made the world’s reserve currency in 1944 as a result of the Bretton Woods Agreement, a status that sterling had previously held.
US News & World Report for more