Role and Future of the US Dollar

Solution Preview

Hello

Please find the guidance notes and references for role and future of US dollar in the world economy in 2010 in the attached file.
Running Head: US DOLLAR

Role and Future of US Dollar

Introduction
US economy is one of the biggest economies in the world almost about one third of the global economy. Obviously, US economy being so big it creates effects on the rest of countries economies. The GDP of US is three times higher than the second largest economy i.e. Japan. US economy has grown to a great extent in the past and maintained its GDP growth rate, a low unemployment, high level of research, capital investment funded and decreasingly saving rates and increasing the foreign investors US are the world's largest financial market, home to major stock and commodities like NASDAQ, NYSE, AMEX and CME. In US, there has been treasure of mineral resources (Brenner, 2002). It means The growth of production in US is high because of high labor force and high earning of labor. These all factors are responsible for the high growth and sound economy of US and made US dollar a major currency in the world.
US dollar is one of the most widely used and stable currencies in the international transactions. Many countries reserves contain US dollar in their foreign reserves because US dollar can be used in business transactions with most of the other countries. The federal bank of United States is the independent central bank of United States. Federal bank uses the monetary policy and fiscal policy to control of money supply through changes in interest rates and control over taxes & spending respectively (Brenner, 2002). These policies would help to maintain low inflation, high economic growth, and low unemployment. US currency is one of the most stable currencies and primary reserve currency in the world.
Role of US Dollar in 2010
Financial policies of US economy have had effect on most of the countries' economy. US dollar is a dominant currency in the world so many countries endorse their own currency with US dollars reserves. The US dollar has been a dominant currency in the world but the current scenario is changing especially aftermath of the subprime crisis. The US economy faced a major financial crisis between 2007- 2009. During this period, there have been many problems with US economy that created drastic impacts on world economy. During this crisis many big financial institutions became bankrupt, inflation rate rose, unemployment rate increased, and dollars exchange rate depreciated against the other country's currency (International Monetary Fund, 2005). But in this period, economies of many other countries such as china, Europe, India, Japan grew significantly. With this respect, the challenges for the US economy increased and there has been some impact of the dominance of the US dollar in the world trade. Though the existence of the US currency as the only dominant currency of the world is significantly changing in the global financial market. But still the dollars plays many significant roles in the financial sectors and play a major role in the international trade. Following are the major roles of dollar in International Financial Market:
Role as International cash:
The Dollar is a major form of cash currency around the world. In 2009, about $580 billion physical United States currency was circulating in all over the world (Hennigan, 2010). The reason of the US dollar's preeminence is high stability. High stability of currency makes it attractive in the countries that face the high volatility and high risk. In last few years, ...