It has been estimated that the dollar is used in almost three quarters of the world trade. And oil is one of the primary products that uses dollar as the currency. The so-called petrodollar or the necessity for dollar to import oil products connects to the importance of the US dollar. It is also the reason why most of the countries’ primary goal is to have a big trade surplus in order for them to buy more oil. We know that every nation’s economy needs oil as source of energy (Andrews).
Countries rely in varying degrees on trade with other countries on goods and services for their consumption and production needs. The transactions among the countries extend to transfer payments, sales and purchases of assets, borrowing and others. A country to have this kind of financial structure is said to have an open economy. Although, there are currencies that are widely used such as the newly created money in Europe, the Euro, and the Japanese Yen still the United States dollar has the authority to control the world of currency.
It is the monetary instrument that makes the global economy moves and interacts with one another.
In fact today, the US dollar accounts for nearly two thirds of the global currency reserves doubling its value a decade ago (Liu). Some countries in the Middle East are now relying on the power of Euro. The president of Iraq, Saddam Hussein, transformed its $10 billion dollar reserve fund from UN into Euro.
Some analysts say that this move was very vulnerable to the economic situation of Iraq (Scher). But years later, Saddam Hussein had actually gained profit from converting its reserve currency because of the recovery of the euro against the dollar.
Similar action was done by the Iraq’s neighbor country, Iran, which also converts almost half of its reserve accounts to euros. Since these two countries are primary producers of oil, their transformation of trading currency would give a noticeable impact on the price of the crude oil (Correggia). This change, in effect, yields steep price of oil which would bounce to the economies of oil-importing countries. The dollar becomes more and more important during the 1980’s as rising Japanese automakers such as Toyota, Honda, Mitsubishi and other car manufacturers uses dollar as their main capital money.
The facilities were built all over the United States in expecting a much bigger market share in the US. In turn, the dollar becomes an important currency for these companies (Perrucci). Since the United States bargain most of the products in this region, the fall of dollar would be unacceptable to them. In addition, the World Band which is source of finance for international development, are of the American dominance. In relation to this event, dollar is the currency that the World Bank would be lending to its borrowers (Rich).
If the dollar weakens, the interest rates from the borrowed money would decrease. It is somewhat an advantage for these poor countries for the weakening of the dollar. But still, big disadvantages always arouse to these country if this currency falls. Global economy would be chaotic if the dollar is very unstable. It is likely to affect overall income for the countries who are in depending on the dollar. This has been the long issue for most of the Asian countries since their economic identity is tied up with the United States.
Moreover, the introduction of American products has encouraged these countries to use dollars (Picciotto and Weaving). Global economy would be chaotic if the dollar is very unstable. It is likely to affect overall income for the countries who are in depending on the dollar. This has been the long issue for most of the Asian countries since their economic identity is tied up with the United States. Moreover, the introduction of American products has encouraged these countries to use dollars (Salbuchi).