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USD, is it still the
de facto world
De Facto Currency
A de facto currency is a unit of money that is not legal tender in
a country but is treated as such by most of the populace.
The United States dollar and the European Union euro are the
most common de facto currencies.
The following countries use the USD as their de facto currency:
Aruba - Most hotels, restaurants, and transportation are priced in
Cambodia - Most hotels, restaurants, and transportation are priced in
Dominican Republic - acceptable in many places, including airports
to pay temporary visa fees for non-US/Dominican visits.
East Timor-independent from Indonesian
Iraq - American commercial, governmental and military
involvement due to the Iraq War and the Iraqi Dinar's low value has
made the US dollar highly preferred.
The United States dollar (sign: $; code: USD; also
abbreviated US $), is referred to as the U.S. dollar, American
dollar ,US Dollar or Federal Reserve Note. It is the official
currency of the United States and its overseas territories. It is
divided into 100 smaller units called cents.
The U.S. dollar is fiat money. It is the currency most used
in international transactions and is the world's most dominant
reserve currency. Several countries use it as their official
currency, and in many others it is the de facto currency. It is
also used as the sole currency in two British Overseas
Territories: the British Virgin Islands and the Turks and
What make$ dollar a World
Various countries use USD as their official currency,
while others use it as a de facto currency.
The US dollar is the currency most used in
international transactions by most of the economies.
Two-thirds of US dollars are held outside of the United
USA’s contribution to the world GDP has been the
highest over the period 1990-2010 as per the World
A long period of dominance has allowed the currency
to become a part of the international financial trading
infrastructure and National currency reserves .
As it is so frequently used in international trade and
investment, the dollar has become an integral part of
international financial and commodity markets.
In quoting exchange rates, the value of a currency is
most commonly stated in terms of the U.S. dollar.
The U.S. dollar is involved in close to 90% of all
foreign exchange transactions, compared to less than
40% for the euro and 16% for the Japanese yen.
How the euro (€) or the Chine$e Renminbi
(RMB) challenge the $upremacy of the dollar
The euro has faced many a crisis since its
inception and it is still there. The European
governments are reportedly planning to issue
euro-bonds, which will be backed by all the
euro-zone governments as a group.
The euro-bond is expected to pave the way
for a European bond market needed to
create an alternative to US Treasury in which
the central banks hold their reserves.
It would thus be easier for governments world
over to diversify their foreign exchange
reserves, in order to reduce the element of risk
and make the reserves.
China is also reported to be moving rapidly towards
internationalisation of its currency.
About 70,000 Chinese companies, according to an
estimate, are now doing their cross-border settlements in
Yuan. There is no doubt that China still has a long way to
go in making its financial instruments attractive to the
international investors. But doing so is an important part of
China’s economic policy. The Chinese government has
already set 2020 as the deadline for making Shanghai a first
class international financial centre.
The Chinese premier has reportedly declared that his
government will boost its spending by 12.5 per cent in 2011
Can Dollar loo$e it$ ground ???Consider
the following facts
The United States lost its S&P AAA rating to AA+ for
the first time since 1917.
One of the reasons the dollar had so far been
considered as the most convenient currency was the
difficulty in comparing prices in different currencies .
The weakness of the US economy is seriously hurting
the dollar’s safe-haven status.
As a result of the global financial crisis and the global
recession, the US debt is already approaching 75 per
cent of its GDP
Due to stimulus packages and spending on the war
against terror, trillion-dollar budget deficits stretch
as far as the eye can see.
With every increase in the US debt burden and
debt-servicing liability, the most-favoured
currency status of the dollar will erode further –
providing an opportunity to rival currencies to
present themselves as an option.
In early 2009, the BRICS proposed replacing the
US$ as the main reserve currency following the
financial crisis due to the collapse of US mortgage
market that led to the worst global recession since
World War II.
What’$ next ?
Economy of the United States has all the means for
It is well diversified and competitive.
It encourages science, invention and positive thinking.
The country is rich in resources and has a moderate
Its infrastructure is highly developed.
It offers solid protection of property rights and contract
But before fully enjoying all these potentials it has
to overcome a nasty hangover from.
Encouraging debt instead of savings.
Abusing its world leadership and dollar’s position
as reserve currency.
This will take many years to fix.
The dollar might be losing as strong currency, but
we have relatively weaker currencies.
The United States might be having big economic
woes, but we have Europe struggling even more.
The debt ceiling might have been raised in the
United States, but we have a series of bailouts in
The U.S. rating might have been downgraded, but
money is still flowing into the US Treasuries.
In other words, on a relative basis, the United
States and its currency might still be better.
There is no doubt that the world is witnessing a
shift of power from the Western World to Asia but
as of now, the dollar will remain the global
currency for coming years.