Every time when we talk about foreign currencies, the US dollar comes first. But have you ever wondered why we always talk about the US dollar? Why is every currency compared to the US dollar? Well, you will get the answer to the question in this article.
How Did It Start?
The US Dollar is one of the heavyweights in the currency family even if it is not the largest. First found and printed in 1914. Before that, all the main-scale trade was accomplished using gold. It was during the first World War that the Allies paid the US for all the supplies in gold. After that, all the countries started treating the US dollar as the standard. The involvement of gold in trade was abandoned.
The Underdog Of Currencies
The US dollar is an absolute baddie in the foreign market. Even though it is not the largest currency by value still all other currencies are denominated in the US dollar. Currencies are always traded in pairs thereby giving rise to exchange rates that are the comparison of the currency values. Some famous trading couples are the U.S Dollar and the Swiss Franc (USD/CHF), US Dollar and the Canadian Dollar (USD/CAD), New Zealand Dollar and the U.S Dollar (NZD/USD), etc.
It so happened during the World War that the Allied countries paid the US with gold in exchange for all the weapons and ammunition. But after the war, the warfare weaponry once owned by the Allies turned to ash while the US now owned all the gold, depriving the Allied forces of poverty.
The Bretton Woods Agreement
This forced the delegates from all the 44 Allied nations to come to a conclusion in 1944 at Bretton Woods, New Hampshire. For the financial good of the economy of all the countries, it was decided that there need to be a common exchange system to initiate the foreign exchange. This made them all to the newly formed Bretton Woods Agreement that stopped the use of gold and pegged all the other currencies to the Dollar. All the Central Banks were made to maintain fixed exchange rates between their currencies and the Dollar.
The US treasury security has been the safest medium to store money even after a series of debt in trillions. The size of the US economy has safeguarded the value of the Dollar in spite of large deficit expenditure and nonstop printing of currency bills. A lot of us must be thinking that the US dollar is the strongest currency the way it is universally preferred for currency comparison but it is not. As one Kuwaiti Dinar is equal to $3.26 and ₹253.65 and is followed by Bahrain Dinar and Omani Dinar for the current date.