The US Dollar will lose its status as the world's reserve currency Term Paper

The US Dollar will lose its status as the domain of a functions reserve up-to-dateness within the foreseeable future - Term Paper Example8 Gilpin, R. & Gilpin, J. M. International economics in the age of globalization. USA Orient Blackswan, 2001. 8 Mankiw, N. G. Principles of Economics. USA Cengage Learning, 2008. 8 Introduction US Dollar had historically been one of the sturdiest of all currencies around the world. Post World War II, when almost all nations around the world were suffering from dwindling resource endowments, they jointly decided to frame a monetary policy which would shackle their respective national currencies with the US Dollar. Such a policy was set in order to confirm the feeble currencies through tying the rates at which they could be exchanged. However with the passage of time, the stability cause assigned with the US one dollar bills is reckoned to fade away especially after the inception of the Euro zone during late nineties and after the economy was v ictimised by the subprime crisis. At present there are many claimants of the incident that the US dollar is about to lose its value as a stable reserve currency. advise of the present paper will be to enlist the arguments posed in favour of the aforementioned assertion. US Dollar is losing its status as the worlds reserve currency Euro had been getting closer to the US Dollars in foothold of bank note circulation. Since its inception during the latter years of 1990s, the currency is lay out to be soaring high in terms of popularity especially among the Asian nations where almost two-thirds of total Euro bank notes in circulation are concentrated. The table alongside displays ample information to establish Euro is fast surpassing Dollars in terms of its circulation. To emphasise, stock of Euro has increased by 7 percent amid 1999 and 2003 while that of Dollars has receded by 6.7 percent between 2001 and 2006. The diagram alongside shows the extents to which different foreign res erves are found to be growing oer the years. Growth in Euro is witnessed as reaching a peak during 2002 and exceeding the corresponding rate for US Dollars (Becker 3). With the creation of the euro in 1999, and the growth of the US external debt and current account deficits since then, the economic appeal of the dollar as an international currency has become less distinctive (Helleiner, 367). In fact, during the post Euro era, the position of US dollar has been fast depreciating owing to the fall in its store of value and liquidity. A declension in the class of liquidity of the currency accounts for the huge sums of US Dollar reserves that East Asian nations reserve had been maintaining in their reserves this specifically is the reason behind a fall in the US Dollar circulation (Helleiner, 368). Prior to the introduction of Euro, US Dollars assumed the topmost position in the international arena. This was in the first place due to the existence of distinct currencies throughout E urope that transaction via US Dollars was associated with a certain degree of economies of scale. However, after Euro was introduced to the world, a swelling of the worlds important foreign market came to be verbalised in terms of Euro and thus, US Dollars lost the economies of scale they used to enjoy previously. An important reason why US Dollars has been diminishing in value in comparison to Euro is that, the latter now represents a chunk of the European continent. This chunk now symbolizes a large unit of the entire global market which is found to be beating that of USA even. Hence, in most of the cases, commodities and services which are available in both markets are denominated in terms