US dollar

From Volatility.RED

The United States Dollar, also referred to as USD or U.S Dollar, is the official currency of the United States of America.

Why is the U.S. Dollar Important?

The United States of America is the World’s Largest Economy

At the time of this writing, the United States of America is currently the world’s largest economy. Yes, China is making a big push at dethroning the U.S., but, it would be unlikely to have too much of an impact on the currency as we currently know it. This is because China basically has a controlled currency by a communist country that tries to look like they are a capitalistic country. Controlled currencies such as China's are not really something that we can trade with any level of consistency because the government is always manipulating their currency and data from a communist country is always suspect.

World Reserve Currency

The U.S. Dollar is the world reserve currency. This means that almost all other nations will need to own the U.S. Dollar in their reserves in order to be able to do business with the United States of America.

All G8 nations keep plenty of American currency in their reserves so that they have this value as a hedge against their own currency weakening. It’s a way of keeping purchasing power in line with the rest of the global economies.

Largest Medium for Cross Border Transactions

The U.S. Dollar is also the medium for most cross-border transactions. Let’s look at an example to better understand what this means.

For example, if Mexico wants to buy oil from Saudi Arabia it can currently only do so in U.S. Dollars. This means that Mexico would have to sell its native currency, the Mexican Peso, in order to buy U.S. Dollars to then go ahead and purchase oil from Saudi Arabia. This further highlights why most countries keep large reserves of the U.S Dollar.

Largest Most Liquid Markets

The United States has the largest and most liquid financial markets in the world. They also happen to be some of the longest-standing financial markets on the global financial scene.

We wouldn’t say that they are perfect but when compared to the other options available they are attractive under most circumstances. The exception is when there is some sort of banking or financial crisis. However, when this stuff happens you can bet that most other markets are having similar issues. This is because the world’s financial markets are highly linked in this modern day and age.

Stable Politics

The US political system is “likely” one of the most stable on the planet. We say "likely" because every once in a while a controversial person becomes the president and stirs things up. However, over the past hundred years or so the U.S. political system is widely considered very stable overall.

There is a low history of things like snap elections in the middle of terms. And although there have been some scandals from time to time, they are no worse than some that have happened in other large economies. Even though the United States does not win number one in all categories, they are at the top in most of them when compared to the other political options.

Military Super Power

At the time of this writing, the United States is the world’s unmatched military superpower. There is no other country that can match the United States' military technology and capabilities but this could obviously change over time. Their technology is amongst the best in the world and they have a huge active military.

Concluding Thoughts

For all these reasons combined this makes the U.S. Dollar, U.S.-related data, and U.S. economic indicators extremely important no matter what currencies you may be trading at any given time. Any news or information relating to the U.S. Dollar will have an impact on almost all other currencies to some degree because it is estimated that the U.S. Dollar is involved in at least 70% of all currency transactions on a daily basis.

Related Wikis

Readers of US dollar also viewed: