Question

Give examples of five (unique) instances when you will need (demand) a currency other than the US dollar. Does this demand for the other currency automatically mean supply of dollars? Explain.

Answer 1

At the time of economic slowdown investor will buy commodity (e.g. gold or silver etc.) and sell USD. At that time you are going towards gold coin/currency by selling dollar. It will increase dollar supply.

When there is a understanding between 2 countries to trade other than the in USD, they can demand other currency other than USD. E.g. Few days back there was a deal between Iran and India, where India will buy Oil from Iran by paying in Rupee only. Here demand for Rupee increases but dollar supply will not increase.

Crypto currencies are attractive investment nowadays. Here you sell dollars and buy crypto currencies. Here supply of US dollar will increase and demand for crypto currency will decrease.

Few countries buy and sell oil in Euro. In that case buyer if oil will buy oil in euro, increasing the demand of euro but it does not impact the supply of dollar.

In primitive barter system, exchange of goods happens without exchanging the currency. In that case also, US dollar supply does not get impacted.