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Published: August 18, 2006
The United States dollar has always dominated world currency. Two thirds of all official exchange reserves rely on the dollar as well as more than four fifths of all foreign exchange transactions. Also, one half of the world exports are denominated in dollars. However, due to recent international events, there has been a gradual shift taking place in world currency.
The value of the dollar has begun to fall and the euro has been steadily rising to take it's place.
The United States economy is operating on an overextended debt structure. The United States has long been consuming more than it has been producing and importing more than exporting creating a trade deficit of $800 billion. This requires more loans from foreign investors to keep the value of the dollar high. Because the dollar is the primary form of world currency many foreign countries have invested in the dollar providing the United States with goods and services in exchange for dollars. As a result the United States imports more goods than exports because it receives imports at such a low rate.
The introduction of the euro has brought a serious rival to the dominance of the dollar as the primary form of world currency. Since 2002 the dollar's exchange rate against the euro has dropped sharply. The current exchange rate for dollar to euro is $1 dollar equals $1.05 euros. As a result, many foreign countries starting to trade with euros have to pay less to buy dollars. Due to the current international climate there is a growing possibility that the euro will grow to dominate world currency. The fall of the dollar would be detrimental to the United States. Import prices would increase for the United States as countries switching to the euro would bring down the value of the dollar. As countries and foreign investors convert from dollars to euros the United States properties and stock market bubbles would burst. The United States would be forced to pay it's debts as foreign central banks and investors would be unwilling to buy of hold large quantities of U.S. Treasury debt in their reserves.
Oil has long been a major obstacle to this scenario with an interplay between oil and world currency. The United States is the world's largest oil import and has an agreement with OPEC,or the Organization of the Petroleum Exporting Countries, to only sell oil for dollars. As a result, the United States has a large amount of control over the world's oil market. However, this arrangement does not leave the United States free from injury. OPEC has the power to end American economic dominance and monopoly over oil pricing and world currency by switching from dollars to euros. This would cause the value of the dollar to plummet causing problems for the United States economy.
Changes in world currency have already begun. Iraq became a threat to American global dominance when it began trading oil for euros in November 2000. When the United States invaded Iraq, it quickly put it back on the dollar standard. However, not even this was successful. Due to sabotage and increasing insurgent attacks on pipelines Iraq's oil production shrank. This caused both the dollar's value to decline further in 2003-2004 and a number of OPEC nations to reduce their dollar holdings.
Current international agreements are also affecting world currency. Iran has been considering switching to euros since 1999 and has currently engaged in talks with China. Holders of United States currency such as OPEC, Mexico, Russia, and Venezuela have already taken steps to putting their reserves under a wider array of currencies. Along with OPEC, Asia also has the power to alter world currency and weaken American economic dominance. The United States has the largest trade deficit with China. China could decide to help the United States by raising the value of it's currency which would lower the price of dollars for Chinese consumers. Or else China could change the global power structure and world currency by trading in euros. The future could hold more international conflict from the United States as the value of the dollar continues to fall and the United States loses it's once powerful hold on world currency.
The United States economy is operating on an overextended debt structure. The United States has long been consuming more than it has been producing and importing more than exporting creating a trade deficit of $800 billion. This requires more loans from foreign investors to keep the value of the dollar high. Because the dollar is the primary form of world currency many foreign countries have invested in the dollar providing the United States with goods and services in exchange for dollars. As a result the United States imports more goods than exports because it receives imports at such a low rate.
The introduction of the euro has brought a serious rival to the dominance of the dollar as the primary form of world currency. Since 2002 the dollar's exchange rate against the euro has dropped sharply. The current exchange rate for dollar to euro is $1 dollar equals $1.05 euros. As a result, many foreign countries starting to trade with euros have to pay less to buy dollars. Due to the current international climate there is a growing possibility that the euro will grow to dominate world currency. The fall of the dollar would be detrimental to the United States. Import prices would increase for the United States as countries switching to the euro would bring down the value of the dollar. As countries and foreign investors convert from dollars to euros the United States properties and stock market bubbles would burst. The United States would be forced to pay it's debts as foreign central banks and investors would be unwilling to buy of hold large quantities of U.S. Treasury debt in their reserves.
Oil has long been a major obstacle to this scenario with an interplay between oil and world currency. The United States is the world's largest oil import and has an agreement with OPEC,or the Organization of the Petroleum Exporting Countries, to only sell oil for dollars. As a result, the United States has a large amount of control over the world's oil market. However, this arrangement does not leave the United States free from injury. OPEC has the power to end American economic dominance and monopoly over oil pricing and world currency by switching from dollars to euros. This would cause the value of the dollar to plummet causing problems for the United States economy.
Changes in world currency have already begun. Iraq became a threat to American global dominance when it began trading oil for euros in November 2000. When the United States invaded Iraq, it quickly put it back on the dollar standard. However, not even this was successful. Due to sabotage and increasing insurgent attacks on pipelines Iraq's oil production shrank. This caused both the dollar's value to decline further in 2003-2004 and a number of OPEC nations to reduce their dollar holdings.
Current international agreements are also affecting world currency. Iran has been considering switching to euros since 1999 and has currently engaged in talks with China. Holders of United States currency such as OPEC, Mexico, Russia, and Venezuela have already taken steps to putting their reserves under a wider array of currencies. Along with OPEC, Asia also has the power to alter world currency and weaken American economic dominance. The United States has the largest trade deficit with China. China could decide to help the United States by raising the value of it's currency which would lower the price of dollars for Chinese consumers. Or else China could change the global power structure and world currency by trading in euros. The future could hold more international conflict from the United States as the value of the dollar continues to fall and the United States loses it's once powerful hold on world currency.
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