DOLLAR IS DADDY

 

The US dollar is regarded as the most powerful currency in the world.

The dollar's strength is the reason nations are willing to preserve it as their foreign exchange reserve currency. A reserve currency is any money that governments or institutions maintain in significant numbers. These currencies are kept by governments to support the value of national currencies, and they can also be used for international payments.

 

The Foreign Exchange Market is basically a worldwide market where currencies are traded. The nature of this market is decentralized. Participants trading on the foreign exchange include corporations, governments, central banks, investment banks, commercial banks, hedge funds, retail brokers, investors, and vacationers.

The exchange rate is the rate at which two specific currencies are exchanged. A currency that is in more demand has a higher value. As various currencies are exchanged in the Exchange market, the demand for each currency in the market determines its value. The government or authority of a country has no or little control over this process of value assessment. Even though the government or central bank of the specific nation intervenes when the currency destabilizes or performs badly.

The US dollar is in great demand because India imports more goods from the US than it exports. In such a case, demand for the US dollar will rise since more dollars will be paid to the US when purchasing things from them.

Furthermore, additional dollars will have to be purchased from the Foreign Exchange Market by Indians to pay for these commodities.

And not only in India, but several other countries like the UK, Singapore, etc also have to maintain reserves in US dollars for buying goods and services.

As a result, demand for US dollars will rise relative to other currencies, hence increasing its value.