5 Real Reasons Why the US Dollar is Traded the Most
Why US dollar is the most traded currency in the world?
Here are the top 5 reasons:
1. The US Economy is the largest economy in the world:
The United States has the largest economy in the world. The estimated Gross Domestic Product (GDP) in 2016 for the US was; $18.56 trillion. The total GDP of all the countries were $75.21 trillion. In other words, the US economy makes up 24.7% of the world’s total GDP.
2. The U.S. dollar is the reserve currency of the world:
As a result of the Bretton Woods Agreement in 1944, the US dollar was officially rewarded as the world’s reserve currency, supported by the world’s largest gold reserves. Thus, instead of gold reserves, other countries collected reserves of US dollar. In addition, when countries want to store their cash, they buy US Treasurys.
3. United States has the largest and the most liquid financial markets in the world:
In order to compare the size of the financial system, one must calculate the financial depth of the country, regional and global levels. It is calculated by dividing the financial assets of a country or region by its GDP. Countries with higher income levels would have deeper financial system. The US has been the greatest liquid financial market in the world for years when the size of their financial system was compared with other countries.
4. United States is the world’s exclusive military superpower:
The United States became the superpower after World War II. The skillful European immigrants running away from the war to the US combined with beneficial economics are basically what led the US to reach this ‘’superpower’’ state. Although, their superpower has become weak and tired specifically after the ongoing war in Afghanistan and Iraq.
5. The US dollar is the main instrument of exchange for many cross-border transactions:
For instance, when Canada wants to buy oil from Saudi Arabia, they have to make the payment with the US dollar. If they are not holding US dollars, they will have to sell their Canadian dollar and buy US dollar to complete the transaction.
In conclusion, we can surely say that the US dollar is the most dominant reserve currency and the single most traded currency in the entire world. The fact that it also pairs with every other major currency, stabilizes its popularity in the marketplace.