Decision Making in a Global Economy

Decision-Making in a Global Economy
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Decision Making in a Global Economy
The US dollar has dominated reserve currency for the last decades. The end of Bretton Woods system in 1971 marked the end of the gold standards rates. Dollar’s stability has made it be the most reserved currency across the world’s banks and financial institutions. The economic stability of the US has further strengthened dollar as the dominant currency.
Why the US Dollar is GoodThe US dollar being the world’s reserve currency has faced significant number of challenges including financial crisis and a decrease of income in some parts of the world (Lee, 2014). Such crisis has caused more liabilities in different banks financial institutions. The regulations enforced to solve them made the dollar scarce and expensive to borrow. Despite the evidenced crisis in 2008 and 2017, the dollar has been effective for use due to its size and stability of the US economy. An increase in the US value evidenced in 2015 shows that the dollar is not losing its reserve currency (Pozsar, 2013).
Foreign market exchange systems have evidenced the strength of the dollar. It is identified across the world’s banks as a significant currency in forex transactions and trading activities. Moreover, foreign exchange transactions involve the US dollar. Different trading activities continue to be conducted through the use of the US dollar which makes it more stable compared to any other currency such as the Chinese Yuan (Lee, 2014).

The US Treasury has an effective system that controls and maintains the purchasing power abroad. Therefore, the world’s central banks are held in the form of the US dollar which makes it safer and efficient to use. The governments acquire currencies from international transactions that utilize the dollar thus enhancing its strength and stability.
Is Strong Dollar Good for the US business and the US Balance PaymentsThe notion that a strong dollar is good is misleading since the US has faced a significant number of financial crisis. For instance, the 2008 and 2015 financial crisis affected businesses in the US since the imports and exports were competitively priced (Lee, 2014). The growing balance payment deficits have put pressure on a single reserve currency.
Reducing unfavorable impacts of foreign exchange rates requires restriction of the US business which would affect the business companies across the region (Pozsar, 2013). The process would also cause the US traders expensive lives due to the increased value of commodities and local tourism. According to Pozsar, the restrictions often focus on stabilizing the local currency at the expense of its local companies (2013). Due to high prices of the US exports, the importing countries have switched to cheaper suppliers which include Arab and China. Such events have caused unfavorable exchange rates to the US local companies.
Domestic companies have been hurt through a decrease of annual earnings and demand for their goods. Values of the products continue to decrease thus continued adverse effects of the currency to the domestic US companies (Pozsar, 2013). Companies that rely on the global market suffer currency fluctuation due to the variation that exists between the imports and export prices. Therefore, the decrease has had adverse effects on the US balance payments.
Summary
The stability of the US dollar has been linked to foreign exchange transaction and trading activities. The currency could be good or bad based on an increase or decrease in the value of income and how the balance payments are conducted. Based on the US local business, the strong dollar has not been good due to financial pressure and currency fluctuation on the import and export markets.

References
Lee, J. W. (2014). Will the renminbi emerge as an international reserve currency?. The World Economy, 37(1), 42-62.
Pozsar, Z. (2013). Institutional cash pools and the Triffin dilemma of the US banking system. Financial Markets, Institutions & Instruments, 22(5), 283-318.