aji123 asked in Social ScienceEconomics · 1 decade ago

Why US $ is used for international trades?

why every country,companies use $ for any trades rather than there own currency or any other currency say Pound or Euro for major trades.

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  • NC
    Lv 7
    1 decade ago
    Favorite Answer

    This is a remnant of the post-WWII situation. Right after WWII, virtually all European countries were in a very tight spot. They needed to trade with each other in order for their economies to function, but they had no trust in each other's currencies (the post-WWI experience was that every country experienced major inflation and currency values were unpredictable, so everyone was afraid it was going to happen again). The newly-created IMF (International Monetary Fund) loaned each country a certain amount of U.S. dollars to serve as reserve currency. Since the U.S. economy did not sustain any major damage from the war, there was no need for the U.S. government to inflate, and the dollar was believed to be stable. In addition, the Bretton Woods agreement specified that the dollar was to be freely convertible into gold at $35 an ounce, while other countries were to maintain convertibility of their currencies into the dollar.

    Also, right after WWII, the Soviet government moved its substantial dollar assets from New York to London and Paris. As a result, these two markets were flooded with dollars that needed to be lent (preferably short-term and with low risk). This is how the Eurodollar market got started...

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  • Anonymous
    1 decade ago

    I think you're misunderstanding international trade. When countries trade with the U.S., Canada, or any of the U.S. provinces, they are likely to use the dollar because relative to the majority of other currencies in the world, the U.S. dollar is worth more (it means less paper has to exchange hands or fewer numbers have to be typed/written on a check). However, trade between European countries would obviously be done using the Euro - it would be pointless to convert everything to the dollar and then convert it back to the Euro. The currency selected in international trade is the currency that makes the most sense from both countries point of view. This means it's either a common currency, or the currency that's worth more relatively in the global market.

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  • 1 decade ago

    International trade in the United States uses the dollar. It's called the trade balance. Each country wants to be paid in its own currency. If you sell something to someone in Japan, you don't want to receive payment in Yens. The person buying converts the yens to dollars and then sends the payment that way. So, international trade in the US is in dollars. In Britain, it would be pounds. There are some countries who have adopted using the dollar as their currency as well, but the vast majority of them have a currency of their own. Generally, you only hear about the US side of a trade deal, so it is denominated in dollars, as that is information that you know how to handle. If they told you the deal was for a million pounds, that probably wouldn't tell you much without some research on exchange rates.

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  • Tracey
    Lv 4
    4 years ago

    While there are benefits from international trade, the benefits accrue to the country as a whole and some sections of the population may be temporarily hurt. Govts. have to deal with the resistance and protests from such sections of the society. The Govts. do not want to lose popularity and hence impose trade barriers to protect sectional interest. In countries which produce lot of cow milk, milk products are not allowed to be exported as the oppostion political parties point out that there are many poor children in the country whose parents do not get to buy milk because of low purchasing power. The argument is fallacious (as more milk can be produced by the country and exports will not result in any significant rise in prices and poor parents can be provided better opportunities to earn to buy milk for their children), but the Govt. does not want that it is perceived as doing something against the interests of children. Consider another example. Imports with out barriers may result in domestic manufacturers facing price and quality competition from imports. No one likes competetion. So, even if the consumers would have gained, the govt. will impose trade restrictions to appease the local producers and the local workers threatened by competion from imports. The govt. may know that the logic is fallacious: the local producers and workers should shift to such production in which the country is cost competitive, the Govts. may be bribed by the local producers or the Govt. may not liked to have an adverse publicity that the Govt. is favoring foreign producers at the expense of local producers and local workers. Consider the case of BPO/ outsourcing. This is actually importing services. But the American politicians are against it because they think that the jobs are going away to foreigners at the cost of local workers. The fact however is different. By ousourcing the American consumers are getting it cheap and the country is gaiing. f BPO does not take place, the American industry itself will become lesscompetitive and the growth of employment in America will be hurt. But commom people would not understand all this detai;s. The Govt. does want to become unpopular abd would be under pressure to ban BPO.

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  • 1 decade ago

    Actually they do. Yet the currency is measured against the us dollar. The US dollar is suppose to be backed by gold also.

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  • 1 decade ago

    Because the dollar is most likely to be worth more when transferred to different currency. When we receive other currency, we return it to original origin, we spend less and our costs our less. That's AMERICA..

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  • 1 decade ago

    Rumor has it that our current fiasco in the gulf was cause by Iraq changing to the euro as the exchange rate. Rumor also has it that Iran is mulling it over too. Chew on that for a bit as OUR dollars fund this war.

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  • Anonymous
    1 decade ago

    Correction to the other answerer. The U.S dollar USED to be backed by gold ( gold certificates, silver certificates). They are NO LONGER backed by gold or silver. Maybe everything is just converted into the dollar to more easily understand the value in the U.S?

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  • 1 decade ago

    because are dollar system is more orginazed and it works, also we are liek one of the best in trades and stuff also cause we are oen of the best countries and people wanan folo our lead

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  • Anonymous
    1 decade ago

    The first answer is right on target with the exception that it changes frequently. :-)

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