Question

Please explain what is the repercussions to the United States of the world accepting dollars in regards to our current account.

Answer 1

  Current Account of the Countries relate to the Transaction accounts that each country maintains for its transactions Internationally. In more depth, current account states the current economic condition of a country. It relates to the balance of trade situation of the country. Reserve currency is the exchange currency in which any two countries decide to exchange their trade in. i.e. while a trade is being done, the currency in which the transaction of the countries is exchanged, is the reserve currency.

  The US Dollar is the most preferred currency of exchange at the international platform at present with dominating the world exports by about 65% of the world exports being dealt in Dollar transactions. The US dollar maintains a very large liquidity in its reserve which has been the backbone of it being the most acceptable means of transaction .The Dollar also holds the reputation of being the safest currency to transact , the law ruling the Dollar being very strict , making it easier for the Countries to trust in the Dollar. Moreover, the US Government has accepted to maintain and run current account deficits, which has further added to the trust of the countries.More than 65% of the countries of the world make their International exchanges in Dollar. This world wide acceptance of the Dollar , had first removed the necessity of maintaining a balance of payment equilibrium and has finally completely eradicated it now. This also means the need to maintain a current account balance is also negated now. When the Balance of Payment and the current account deposit are under control , it has substantially helped the US Government over the years in focusing on the development and the upkeep of the domestic US market. The International market equilibrium was taking care of itself though the current account balance being under control. The US Government has therefore been able to concentrate fully on the domestic development. The acceptance of US Dollar led to a situation where, for the exports that US has had to take from the other countries , it has very rarely had to repay them in cash. The countries were paid through the paper bonds of their deficit of the exchange. This has further helped in the accumulation of large amount of liquidity balance in the US economy. This liquidity balance has further infused a huge surge of development in the country. The basis standard of living of the US nationals has risen substantially. Moreover, this has largely contributed in the US becoming a Global dominant force.