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Significance of USD as a currency of international trade

Writer's picture: Saurabh SonthaliaSaurabh Sonthalia

The Pettis article (https://carnegieendowment.org/chinafinancialmarkets/86878) is a travesty! The USD as a currency of world trade is not a 'burden' on the US as he describes it but the source of US economic Wealth. I will try and give this through an example. Let's say you go to Pakistan. Internal trade - food & services in Pakistan is in Pak Rupee. So, to survive there, however much you may dislike Pak Rupee, you will have to buy and keep with you some Pak Rupees to Survive! How much you buy will depend on your personal level of expense or linked to your personal 'GDP'. Similar is the case with countries who want to trade in international markets! Since that trade is in USD, you have to keep USD, and the amount you keep depends on your GDP. This is a perpetual and the cheapest and also expanding (as global trade expands) source of financing for the US as it has to pay nothing on dollars printed and a nominal amount on borrowings which are in practice perpetual. The same USD, which is also perpetually appreciating is used to buy your goods and services cheaper and cheaper or it is given to you as very expensive equity. The US knows this and they will move heaven and earth to keep this advantage. China wants to muscle in on the game but nobody trusts them!

 
 
 

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