US Dollar - Effects in the modern economy

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U.S. dollar is strongest currency which supports U.S. economy. The reason is that more than one -third countries of the world's gross domestic product comes from countries that peg their currencies to dollars. A strong economy will attract investment from all over the world due to perceived safety and ability to achieve return on investment. Since investors seek higher yield on investment particularly from abroad, creates a strong capital account and high demand for dollars.

Economic losses of World War have resulted into destruction of capital, trade, human suffering, spread of diseases, displacement of people and destruction of environment among others.

Bretton Woods system
In the post war scenario, need was felt to have a system to control value of money between different countries. It means that each country had to have a monetary policy that kept exchange rate of its currency within a fixed value - plus or minus one percent - in terms of Gold.This system was agreed upon by Allied nations in July 1944 in Bretton Woods, a place in New Hampshire in USA known as United Nations Monetary and Financial conference.

The countries agreed to keep their currencies fixed to Dollar, and the Dollar was fixed to Gold. U.S. had responsibility of keeping Dollar price of Gold fixed and had to adjust supply of dollars to maintain confidence in Gold convertibility. This system was established at the end of World War II. The objective was to prevent competitive devaluation and promote economic growth. Aim was to rebuild post war shattered economy to promote international trade and cooperation.

To do this, World Bank was established in July 1944 and International Monetary Fund in Dec. 1945. The goal of establishing World Bank (IBRD) was to end poverty and International Monetary Fund (IMF) to stabilize exchange rates. 

In 1971, President Richard Nixon announced new economic policy and put an end to convertibility of US dollars to Gold and announced wages/ price controls.

This is the present position of Dollars in the present economic conditions.                       

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