USD, is it still the de facto world currency?

Presented By:

Neha Dusad

Narendra Kumar

Rohit Jha

Akash Gupta

Arshiya Khan

Sahil Shetty

Aroh Shrikhande

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 dollars. Cambodia - Most hotels, restaurants, and transportation are priced in

dollars. 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.

Lebanon Panama Zimbabwe

USD 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 Caicosislands.

What make$ dollar a World currency  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 States. USA’s contribution to the world GDP has been the

highest over the period 1990-2010 as per the World Bank.

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.

Contd.Chinese RMB 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

recovery because It is well diversified and competitive. It encourages science, invention and positive thinking. The country is rich in resources and has a moderate

climate. Its infrastructure is highly developed. It offers solid protection of property rights and

contract enforcement.

But before fully enjoying all these potentials it has to overcome a nasty hangover from.

Excessive spending. Encouraging debt instead of savings. Abusing its world leadership and dollar’s position

as reserve currency. This will take many years to fix.

Conclusion 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 Europe.

The U.S. rating might have been downgraded, but money is still flowing into the US Treasuries.

Conclusion(contd.) 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.