Academic journal article Monthly Labor Review

The International Role of the Dollar

Academic journal article Monthly Labor Review

The International Role of the Dollar

Article excerpt

The U.S. dollar is considered by many to be the world's preeminent currency: heavy use of the dollar extends far beyond the Nation's borders, making it crucial to international finance and trade. However, since the emergence of the euro in 1999, a large number of commentators have questioned the future of the dollar in such a role. One of these people is economist Linda Goldberg, who asks, "Is the International Role of the Dollar Changing?" (Federal Reserve Bank of New York, Current Issues in Economics and Finance, January 2010).

As a relatively stable currency, the dollar serves as a reliable store of value in many countries, especially those countries where the local currency is inflating rapidly. Approximately 65 percent of all U.S. banknotes are in circulation outside the Nation. The United States also benefits from the international role of the dollar, which decreases transaction costs in international finance and trade and aids in insulating the U.S. economy from foreign shocks.

Another sign of the dollar's prominence is that, as of 2007, there are 7 countries that are dollarized or have established currency boards that use the dollar and 89 countries that have a fixed exchange rate with the dollar. …

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