Why America is the world’s most powerful country & how Dollar become reserve Currency.

Why dollars is more power currency in world why not Yen or Euro and why almost every transaction in internatinal market is impossible without Dollars. How America become so rich, Super Power and sustain its positions in upcoming future.  Is “Dollar” is a only reason….?

To understand the Dollar position in world we have to go in past

World War II (Second World War)1939 to 1945

The process of making world currency of dollar is start in year 1944 when “World War II” is about to end and were every country is fighting with financial disaster.

In year 1944 after the expected defeat of Germany and Japan, to reconstruct all the country which is destroy in “World War II” and to recover world economy after world war there is a need of financial arrangement for the postwar world.

A agreement was created by all the nation allied in “World War II”. A Conference took place in Bretton Woods, New Hampshire, from July 1 to July 22, 1944 and

Bretton Wood Conference

Delegates from 44 countries met to create a new international monetary system. The main goals of the meeting of the 730 delegates were to ensure a foreign exchange rate system, prevent competitive devaluations and promote economic growth.

The Bretton Woods conference, officially known as the “United Nations Monetary and Financial Conference”, which was fully functional in year 1958. This system is landmark for monetary and exchange rate management.

A series of new rules was proposed for international monetary system. Several important decisions is taken by all the Delegates from 44 countries, like establishment of International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF) and currencies became convertible.

Member countries pledged to make their currencies convertible for trade-related and other current account transactions.

In order to convert currencies, countries settled their international balances in dollars because America is not the only country who unharmed in “World War II” but also its economy is most strong and stable in the world.

American currency is the only currency which is reliable and convertible at that time. With the support of United kingdom and other nations, it is approved that dollar is now world reserve currency and which  is mandatory for all the transactions doing by International Monetary Fund(IMF) and World Bank.

US Dollar

On approval of dollar as a world reserve currency America promised that they were limited there dollar printing to avoid inflation(Increase in the money supply is one of the causes of inflation) but also  any country can be exchanged there dollar with gold .

Now U.S. dollars were fully convertible to gold and the exchange rate applied at the time was $35/ounce. U.S. take responsibility for keeping the price of gold fixed and maintain the supply of dollar.

United State is the only country during and after World War II  who have  gold reserves of 20,000 tons and can be exchange dollar against gold in huge amount.

Federal Reserve Bank of New York

During Vietnam war 1 November 1955 to 30 April 1975 America spend $273 billion dollars, which is one of the most costliest conflict s in American history. In the year 1968  the U.S. spent a record $77.4 billion dollars on single year in Vietnam war.

Vietnam War

During the Vietnam war  many countries has been reveal that U.S. printing the Dollars in huge amount  on its necessity and break the rules of Bretton Woods conference.

Later this federal Reserve USA refuse the permission to many countries for auditing of its printing press. In that time U.S. dollar value goes down.

In year 1971 when France demand for its gold against dollar and U.S. refused  it. France sent a warship to New York Harbor in early August 1971 with instructions to bring back its gold from the New York Federal Reserve Bank.

On august  15 1971 President Richard Nixon suspended convertibility and changed the dollar against  gold relationship to $38 per ounce, which is  effectively ending the 25-year Bretton Woods agreement of fixed currency exchange rates against the US dollar. Every  nation already have lots of  dollar as a reserve  in there vault.

U.S.  gold reserves were facing lots of pressure during Vietnam war. The U.S. government not allowed to other countries to redeem their dollar with gold and repriced gold price to $42 per ounce in 1973,  the price of gold quickly shot up to $120 per  in year 1979.

Once gold standard is dropped its value, every country now start printing  their currency in huge amount and results of more supply of currency inflation is occur. Gold reserve  give more economical growth because gold never lost its appeal as a asset of real value.

Most of the nations already have lots of reserve U.S. dollar in there vault and if America not giving gold against  dollar then dollar value become peace paper and world is flooded with many types of currency which  doesn’t make sense.

U.S. dollar was falling and losing their stability, reliability and position as world currency and to shore the value of undervalue dollar Richard Nixon negotiated a deal with Saudi Arabia. If they were agree to trade crude oil in U.S. dollars, instead of these America exchange arms and  protect their country and oil fields.

Subsequently this offers given to all ORGANIZATION OF ARAB PETROLEUM EXPORTING COUNTRIES (OAPEC) countries and they agreed to trade crude oil in $3 per barrel Contract because dollar has global demand and reserve currency.

OAPEC  countries also want to profitable in real terms. America could no longer redeem dollars for gold at $35 an oz.

Six Day Arab-Israeli War

Instead arms and protection there is one more reason to accept these deal.! Israel. Arab world lost their battle in “Six Day Arab-Israeli War” 5 June to 10 June 1967.

The Israeli victory was the result of a well-prepared and enacted strategy and defeat Egypt,  Syria, Jordan, Iraq and fight in four front simultaneously.

Result of these war Israel captures the Gaza Strip and the Sinai Peninsula from Egypt, the West Bank (including East Jerusalem) from Jordan, and the Golan Heights from Syria. Arab Nation wants  support from America to  safe their land and oil fields.

Economist use another terminology to describe the dollar received by OPEC countries in exchange of oil the “Petrodollar” was invented. This mechanism was going to make America a Super Power.

Nowadays every barrel of crude oil sold in world market increases demand for us dollars. With the help of these strategy, world continue trade crude oil in dollars and America going to more and more super power.

U.S. use his power  to protect OPEC nation and setup so many Military bases in gulf areas.

U.S. Base Camp in Middle East

America still printing their money without any restriction and dollar value never goes down because of demand of Petrodollar. During and after World War II, many western European nations shipped their gold to New York Federal Reserve vaults in the United States for safe keeping.

Over the past several years, some of the gold belonging to Germany and the Netherlands has been repatriation.

Top 10 Gold Reserve Countries