The US is in the enviable position of possessing the world’s reserve currency: the US Dollar. As the reserve currency, much of international trade is performed in US dollars; particularly oil sales. This is where the term petrodollar originates.
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The US is in the enviable position of possessing the world’s reserve currency: the US Dollar. As the reserve currency, much of international trade is performed in US dollars; particularly oil sales. This is where the term petrodollar originates.
With reserve currency status, the US can do things other nations can’t, from printing money to pay off debts (if it wished to) to growing GDP by exporting debt to other countries. Other countries that try such tactics tend to end up with hyperinflation and currency collapse, such as Zimbabwe in the late 90s through the Aughts.
Even with reserve status, though, such strategy isn’t without risk. An economy can be grown only so far through debt, and interest rates staying at record lows for the better part of a decade had delitritous effects on consumer access to debt from banks.
How did the US get its reserve currency status, and what is its future with developments such as the Yuan entering the IMF basket of currencies? Join Tim, Matt, and special guest Jeff Crystal as they continue their discussion of central banks and reserve currency in this episode of Trading Justice.
Notes
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