What is the role of the American Dollar as an international currency?

Résumé du document

Nowadays, with globalization, the exchanges all over the world are increasing more than ever. One can say that it is necessary to have an international currency in order to structure the exchanges between countries all over the world. Internationalisation of a currency starts with its use as a means of payment before being used as a store of value or a unit of account. The system of Bretton Woods, which organized the international monetary system around the American Dollar, combined with the Marshall Plan and propelled the US as the principal supplier of goods and service to Europe after the Second World War and gave the status of International currency to the American Dollar. However, one can read that Euro is a potential candidate to become the international currency by ending the supremacy of Dollar since the end of the Second World War.

Extraits

[...] The international currency is used as an store value because this is the currency the most used in international transactions and the central banks constituted a large reserve of this currency in order to be able to control as much as possible the exchange rate in order to favour exchanges. The graphic below show the percentage of the global foreign exchange reserves: we can see that US dollar is the most important currency in the foreign exchange reserves in the world. [...]

[...] In contrary to the ECB, the Fed is characterised by a strong reactivity to the situations and the pressure of the market: this flexibility which Euro doesn't have, favours Dollar. Dollar also benefits of the historic confident, inherited from the system of Bretton Woods. Thus at the end of the system, several countries choose to fix the value of its currency to the value of Dollar. In spite a preference for the flexibility of exchange rates nowadays, a lot of countries tried to limit the fluctuations of its currencies by anchoring them to Dollar. [...]

[...] I will talk about the international role of Dollar as an international currency in the following part. The functions of an international currency are grouped through different factors: The costs of transaction: the market of international transaction is important and dense, monetary authorities have interest to use the same currency for their interventions in order to limit the transaction's cost and the private investors should have actives in this currency The bonds' emission: the denominative function determine the offer of bonds, availability of equities and bonds in certain currency if it want to spread as an anchor or a mean of payment. [...]

[...] Nevertheless, the attack of September 11th, the wars and the Subprime crisis provoked American Economic instabilities and one can wonder about the future of Dollar as the international currency. Even if the use of Euro on the international markets is limited in comparison to Dollar, the European currency disposes of characteristics which can compete with some points of dollar. III) Euro as the future international currency? Euro has a potential as an international currency: Euro is, currently, the second currency after Dollar in the official reserves of currencies. It is an important currency of reference of exchange regimes in Africa and in central and oriental European countries. [...]

[...] How can international currency be defined? An internal currency is a currency used by residents of a country which is not the country of this currency (example: used of Dollar in Europe). This currency is used in the international exchanges and in financial transaction: this currency circulates all over the world. International and national currencies have 3 functions: - Mean of payment : how one can pay for the purchase of a good or service - Unit of account: a standard monetary unit of measurement of the market value/cost of goods, services, or assets. [...]