Why Was the Dollar Invented – Many countries in the world, including Indonesia, use the United States (US) dollar as a means of international payment in carrying out economic transactions. Not only that, the dollar is also the price benchmark for many global products.
However, do you know why the dollar was created and what is its role and significance in the economic world? This article will discuss the history of the dollar, why the dollar has become a global currency, and its role in international trade, as well as its significance for the world economy.
Dollar History
The dollar was first created in 1792 by the United States Congress as the official currency of the superpower. The name dollar is taken from the word “thaler”, a currency used in Europe in the 16th century. Quoting Wikipedia, the Thaler is a large silver coin that was first made in 1518. The Thaler refers to the Joachimsthal mine (Joachim’s valley) in Bohemia (Thal in German means valley). Originally, one dollar was equivalent to 24.75 grams of pure silver. Over time, the value of the dollar shifted from a precious metal to a paper system and became the global currency as it is known today.
Developments in Dollar Use
The use of the dollar as a global currency began in 1944 with the Bretton Woods Agreement. This agreement made the dollar the benchmark currency for the gold standard, where other countries could exchange dollars for gold at a fixed rate of USD35 per ounce. However, in 1971, the US decided to end the use of the gold standard and make the dollar the currency used throughout the world.
Why is the dollar a global currency?
There are several factors that make the dollar a global currency. First, the US is the largest and strongest country in the world in terms of economy, technology and military. This makes many countries believe in the stability and economic strength of Uncle Sam’s country, and use the dollar as a benchmark for exchange rates. Second, the US has a strong and stable central bank, namely the Federal Reserve or known as The Fed.
This central bank has a proactive and sophisticated monetary policy, so it is able to maintain price stability and the dollar exchange rate on the global market. Third, the US is one of the countries with the largest and most developed economy in the world. The United States’ success in various sectors, such as technology and industry, has made this country a global business and investment center. This strengthens the dollar’s position as the most stable and strong currency on the global stage.
The Role of the Dollar in International Trade
Since becoming a global currency, the dollar has played a very important role in international trade. Many countries accept dollars as a means of international payment, especially in oil and commodity trade. Not only that, many multinational companies use dollars as the currency for their business transactions. The existence of the dollar also makes transactions between countries easier because the exchange rate remains stable and acceptable throughout the world. This also makes it easier for international banks to carry out transactions and currency conversions.
Signifikansi Dolar bagi Perekonomian Dunia
The dollar has great significance for the world economy. As a global currency, the value of the dollar can influence the exchange rates of other currencies in the global market. This clearly has an impact on international trade, investment and monetary policy in many countries. When the value of the dollar rises, the price of imported products will fall and the price of export products will rise, thereby reducing a country’s trade deficit. However, an increase in the value of the dollar can also make a country’s product exports more expensive, thus potentially reducing economic growth and employment.
Difference between US Dollar and Other Dollars
The US dollar has differences with other dollars, such as the Canadian, Australian and New Zealand dollars. Even though they all use the name dollar, their exchange rates are different from each other. Apart from that, the US dollar is also used as a benchmark for exchange rates in world commodity markets, such as oil, gold and silver.
