2.3 How Global Trade Runs on U.S. Dollars Flashcards
Summary of Video
The US dollar is the most widely used currency in international transactions, accounting for nearly 90% of all transactions in 2019. This gives the US extraordinary power over every entity that imports or exports anything anywhere. The global economy runs on the US dollar because it is the world’s reserve currency, which means that many countries hold substantial amounts of US dollars as part of their foreign exchange reserves. This allows them to buy and sell goods and services in US dollars, which is more stable than their own currencies. However, some countries are trying to chip away at the dominance of the US dollar by using other currencies such as the euro, yen, and yuan
What is the main reason why the US dollar dominates global trade?
The US dollar is the most widely used currency in the world
How does the US use the power of the dollar to advance its foreign policy goals?
By cutting out the sources of funding for terror organizations.
By increasing surveillance of global money flows.
By curbing financing toward bad actors.
Which country or entity was developing a euro-backed system to facilitate trade with Iran?
The European Union
What is the potential impact of other countries chipping away at the power of the US dollar?
It could hurt the United States’ ability to control the global trading system.
It could make it more difficult for the US to impose sanctions on its rivals.
It could make it more expensive for businesses to do business in dollars.
What are some of the benefits and drawbacks of using the U.S. dollar as the dominant currency for global trade?
It reduces transaction costs and exchange rate risks, but it also gives the U.S. more power and influence over the global economy
What are some of the challenges and risks of moving away from the U.S. dollar as the global reserve currency?
It could create more volatility and uncertainty in the global financial system, as there is no clear alternative to the U.S. dollar that is widely accepted and trusted by all parties.
