Why is the US dollar the world's standard currency?

[Anonymous]

It's not because it's backed by the US Government. Trust me, if that were the case, it would of been gone a long time ago. It's not because it's a matter of "tradition" or irrational preference. It's for one simple reason: You can't buy oil directly from the producers with anything else. The US dollar is actually backed by something and its energy. It also explains something else: Increasing oil prices. It's simply the market reassessing the value of the dollar and its inflation according to the tangible and real value of oil.

The oil producers have been looking to dump the dollar for awhile now. When that happens where do you think the dollar will go? Anywhere but up, fortunately.

So, for all of you fiat fanatics and statists out there, no, I'm sorry. Your money does not have tremendous value because its backed by an authoritarian regime. In the end, it's the goods you can buy with it.
 
Also, could Bitcoin possibly serve as the next oil currency? I doubt the establishment will allow it but anything is possible.

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[Hawker]

Confidence and liquidity.

Confidence that the US will repay its debts without hyperinflation.

Liquidity means that if the buyer changes his mind, he can offload dollars instantly.

The dollar, Sterling and Swiss Franc are essentially zero risk but the dollar is by far the most liquid as its used for international trade.

You have no idea how lucky that makes you guys

[ineededausername]

Thank you for posting a thread and then answering your own question, Atlas.

[johnj]

I'd be more likely to imagine it's kinda reverse:

OPEC & Co use the USD so the US doesn't screw with them too much.

The USD isn't backed by the government, it's backed by the US citizens which have demonstrated they are more than willing to be fleeced.

US runs out of fleece -> can't back USD -> Loses 'supreme world power' status -> OPEC dumps USD.

At least that's how I imagine it.

[johnj]

You have no idea how lucky that makes you guys

Remember when you say 'you guys', that the wealth distribution (in the US) is immensely disproportionate.  Last numbers I read was the top 10% has 70% of the wealth (could be wrong).

I'm not hating on capitalism or if it has a 'fair' status, simply pointing out that that it only makes a few of 'you guys' lucky.

[FredericBastiat]

I've always thought that energy might make a good currency. Not sure exactly how it would work, just that everything living requires energy to subsist. Maybe if we attempted to create an energy currency, that could work better than a number of other commodities. Free market first, of course. No "legal" tender.

[GideonGono]

The US dollar is backed by the bullets and bombs of the US Military. Try to dump them and you'll get royally screwed. Just ask Qaddafi & Saddam.

[FredericBastiat]

The US dollar is backed by the bullets and bombs of the US Military. Try to dump them and you'll get royally screwed. Just ask Qaddafi & Saddam.

Are you saying that because Qaddafi and Saddam stopped using the US dollar as the reserve currency for oil transactions, is the reason they were invaded? Hadn't heard that one. References please.

[AyeYo]

The US dollar is backed by the bullets and bombs of the US Military. Try to dump them and you'll get royally screwed. Just ask Qaddafi & Saddam.

Only correct answer so far.

You can make an argument that it's backed by confidence to repay debt and all that BS, but that confidence still boils stems from the US's military power.  It's not that the world trusts the US to repay its debt, it's that the world knows the US doesn't have to repay its debts because: #1, if it goes down the drain the whole world goes with it, and #2, as long as the US has the biggest gun, the US will continue to make the rules.

This is why the US is so obsessed with "defense" (actually offense) spending and why we have a military budget that's more than the every other developed nation combined.  It takes a lot of firepower to keep the rest of the planet under your thumb.

[AyeYo]

In the end, it's the goods you can buy with it.

Well no fucking shit, Sherlock.  What do you think gives ANY medium of exchange value?  It's what you can exchange it for.


The dollar is the world's reserve currency because it's backed by the US government and the US government actively ensures that it maintains this status.
The dollar has value because people want it, because they trust it due to the above.

Don't confuse the two concepts.

[Rassah]

US has military bases all over the world, and actually gets paid by countries to keep them safe. Places like Japan and many European countries are able to afford things like "free" healthcare and such because they are not paying to support their own military; we provide that to them (for a fee). As long as the US requires those countries to pay for our military and hardware with USD, the currency will have backing (though, granted, not as much as from oil backing).

[fergalish]

The US dollar is backed by the bullets and bombs of the US Military. Try to dump them and you'll get royally screwed. Just ask Qaddafi & Saddam.

Are you saying that because Qaddafi and Saddam stopped using the US dollar as the reserve currency for oil transactions, is the reason they were invaded? Hadn't heard that one. References please.

e.g. http://www.rense.com/general34/realre.htm

Didn't know about Gaddafi (sic).  I'd understood it was an internal revolution initially, but helped along in the second half.

It's for one simple reason: You can't buy oil directly from the producers with anything else. The US dollar is actually backed by something and its energy. It also explains something else: Increasing oil prices. It's simply the market reassessing the value of the dollar and its inflation according to the tangible and real value of oil.

And gold has been a reasonable estimate of the value of energy. See the third graph at http://www.incrediblecharts.com/economy/gold_oil_ratio.php

[deuxmill]

HUGE ARMY. Actually HIPPER ARMY.