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ECON310-08-1901A Discussion Board

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Discuss the following in your main post:

The U.S. dollar remains the world's reserve currency. Is this good for the United States, and if so, why?

Until 1971, according to Bretton Woods agreement, United States agreed to exchange dollar at a fixed price of $35 against 1 ounce of gold. However later, Richard Nixon address the issue of abandoning gold standard by arguing that this may lead to inflation and unemployment in the future (Druck, Magud & Mariscal, 2018). The post Bretton Woods era is considered as a floating exchange system however unlike other countries US dollar have never been devalued which is one of the key reason that US dollar maintains a global status. The continued status of dollar is being maintained as reserve currency because of the strengthened US economy. According to the foreign exchange transaction statistics, more than 90% of foreign exchange involves US dollars as base revenue in the year 2013 (Cova, Pagano, & Pisani, 2016). This is also attributed to the fact that majority of international trade finance are made exchanged in US dollars. Interestingly, it is considered to be beneficial for United States as because they need not to spend on the exchange rate. The issue also allowed US government as well as Americans to enjoy money lending at favorable rate, borrowing at lower cost, and continue the business of import at cheaper rates.

People usually think a “strong” dollar is good. Is this true for U.S. businesses, and does it help or hurt the U.S. balance of payments?

The rise and fall in the value of dollar significantly affects the business involved in import and export. Particularly for the businessmen of America, the import becomes cheaper especially when manufacturers company’s currency falls compared to dollar. This implies to the fact that strengthening of dollar always results in continuous fall for the price of imports. Similarly for other business companies who are involved in purchasing raw materials and imports from abroad, enjoys lower total cost of production and higher profit margin, especially when the exchange rate for dollar falls (Forrest, Ying & Gong, 2018). On the other hand, this is also considered as one of the disadvantage for industries such as tourism and hospitality in United States. Because of the strength of dollar, the expense for travelers and foreigners in US becomes very high which makes the consumers to choose US for traveling and leisure spending, a less attractive issue. Considering the statistics of international monetary fund, US dollar have always been consistent for a minimum 1% gain in strength every year. As a result of which, this helps the US balance of payment, as they need to pay less, due to rise in the strength of dollar compared to other currencies (Maggiori, Neiman, & Schreger, 2018).

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