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How the Dollar Became the World's Currency?

In the beginning, there were many different currencies around the world. Some were made of metal, like gold and silver. Others were made of paper, like the Chinese yuan. But none were as successful as the almighty dollar. So, how did this come about?


The dollar was first created in 1774 when American colonists revolted against British rule and declared their independence. As a colony, America was dependent on Britain for most of its supplies, and so it needed its currency to establish its independence.


Later in 1785, when George Washington became the first president of the United States, he and Congress introduced the dollar bill. This new currency was backed by gold – the United States treasury had to buy gold from private banks and then use it to make coins, these coins were then put into circulation as money. Thereafter, the US dollar became the only legal currency used in the young nation.


By 1792, Congress had created a new constitution for the US, and the new document included the phrase "United States dollars" to describe the paper money issued by the federal government. This was a big step forward for the US; it proved that its currency could compete with other countries currencies and become an international standard.


From then on, the US accepted any foreign coin or note that was traded for the dollar and gave the holder a dollar in return. This helped establish the dollar as a world currency and made it a popular choice for trade and financial transactions around the world.


During the next two centuries, the US economy grew and expanded steadily. Its economy depended on natural resources such as farmland and coal as well as on industrial manufacturing.


Meanwhile, Europe suffered from a series of wars and political upheavals. These factors allowed the US to become the dominant economic power in the world, and its currency soon became the most important in the world as well.


Thus, in 1913, the U.S. dollar became "the world's reserve currency". Which means it was accepted around the world to pay for goods and services. One reason for this is that the dollar is issued by the largest economy in the world - America. Another reason is that the dollar has a fixed value compared to other currencies.


The U.S. dollar was becoming more popular in international trade, so in 1944, the Bretton Woods Agreement was signed between the United States and 44 other countries. This agreement was meant to create an international monetary system where all currencies were valued in relation to the U.S. dollar.


The agreement allowed countries to use their own currencies to conduct international trade instead of exchanging their dollars for other currencies. This was the beginning of the internationalization of the dollar.


In addition to this, the dollar was pegged to the price of gold at $35 per ounce. This decision was reached because gold is valued as a form of wealth and it cannot be created or destroyed. Thus, by keeping the value of the dollar fixed to the price of gold investors would find it easier to buy and sell gold since the market price of gold would be known at all times. This "pegged" the dollar to the price of gold.


However, this would not last, the United States government officially went off the gold standard in 1971. As stated previously until then, the value of the dollar had been fixed to the price of gold. Meaning the value of the dollar was equal to the value of an ounce of gold. However, after that, the government stopped buying and selling gold, so the price of gold was no longer tied to the dollar.


Due to that, the U.S. dollar lost approximately 80% of its value. This led to a period of stagflation in the U.S. until the 1980s. During this time, the Federal Reserve tried to increase the money supply, but this only led to more inflation. By the end of the decade, the economy had improved somewhat, but the value of the dollar was still low.


In response, Congress imposed the first Value Added Tax (VAT) in 1982 to help pay for the national debt caused by the war on Iraq. Later that same year, Ronald Reagan was elected as the 40th President of the United States and he implemented sweeping tax cuts that helped turn around the U.S. economy. By 1986, the U.S. dollar had recovered to pre-1971 levels.


However, this would not last either and the dollar would continue to fluctuate for years to come. For instance, in 1988, the U.S. dollar was devalued by 10%, due to growing concerns about rising interest rates and increased government spending. During the 1990s, the economy continued to perform well, and the value of the U.S. dollar then increased steadily. Then Between 1990 and 2000, the value of the dollar increased by more than 50%.


However, by the early 2000s, the value of the dollar began to fall again as a result of an increased supply of U.S. dollars. And in 2002, the U.S. dollar was devalued by 20%. Due to these fluctuations and the dollar’s declining value, the government adopted a new policy of quantitative easing, which encouraged banks to increase their lending activities without increasing the supply of dollars in the market.


As a result, there was an increase in the demand for U.S. dollars and a decrease in the supply of them. Thus, by 2008, the U.S. dollar was once again devalued, this time by 30%. This happened in response to the financial crisis that was caused by the collapse of the housing market in the United States. This crisis caused many countries, including the United States, to adopt austerity policies to reduce their budget deficits.


Today, the US dollar remains the main currency used in international trade and for business transactions around the world. It is also the official currency of many countries, including Australia, Canada, and Mexico. For over two centuries, the US dollar has proven to be a reliable and stable form of currency that can be used anywhere around the world.


However, history has taught us that whatever powerful and rich a nation stands today may not last for long. In fact, no nation throughout history has been able to remain powerful and prosperous forever. Will the dollar remain dominant or will our generation witness its destruction? If so, what will be the alternative currency?


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