Question

In 1944, finance specialists and bankers from around the world met to discuss what the post-WWII monetary system would be. Given the instability of the pre-war period, the goal was to create a new system. The outcome of this was the Bretton Woods system, which had the U.S. dollar as the world reserve currency linked to gold at $35 an ounce. All other currencies were tied to the dollar with limits on how much they could appreciate or depreciate. The system lasted until the 1970s, when the United States decided to move away from gold convertibility. The modern system is based on supply and demand for currency and a managed float. Discuss the following in your main post: The U.S. dollar remains the world's reserve currency. Is this good for the United States, and if so, why? People usually think a "strong" dollar is good. Is this true for U.S. businesses, and does it help or hurt the U.S. balance of payments

Answer 1

1. In terms of the benefits of U.S dollar remains the world's currency, it is needed to say that there aspects that are both positive and negative:

• Positive aspects: If more companies and individuals use the currency means more transactions denominated in dollars, this allows U.S firms get easier access to capital because of the dollar’s reserve status. Additionally, it makes it easier for companies to exchange goods, by eliminating international transaction risks (i.e: difference in exchange rate).
• Negative aspects: If the demand for dollars increases, but the Federal Reserve doesn't issue more dollars, the exchange rate increases, making U.S goods more expensive for foreign companies, affecting exporters for example.

2. A strong dollar often brings many difficulties for U.S companies, especially for those that have a great proportion of business overseas (exporters for example), as the income they earn from foreign sales will decrease in value on their balance sheets.

For U.S citizens traveling abroad, a strong dollar implies their purchasing power is increased.

Another example in which a strong dollar brings benefits is associated with importers. Imports from a country become cheaper since its local currency loses value (depreciate), leaving more money in the hands of the US importers to spend on other things hence increasing consumptions which helps propel the economy as a whole.