Future of Dollar and Probable Currencies-Free-Samples for Students

Question: Discus about the future of dollar and the probable currencies that can take over dollar in being the global currency. Answer: Introduction Global currencies are always backed by commodities in order to protect it from the possible devaluation or collapse. Traditionally the value of the currency is being protected with the value of gold. However, economy of the United States is no longer based on the valuation of gold; rather they are now operating as fiat based economy (Bogdan et al., 2014). This denotes that currently American economy is based on the market supply and demand. Thus, the vulnerability of the dollar gets increased and it is important to determine the future of dollar as the global currency along with the possibility of collapsing. This essay will discuss about the future of dollar and the probable currencies that can take over dollar in being the global currency. In addition, steps to be taken by the US government in protecting dollar will also be discussed. The efforts made by the government in past in protecting the valuation of dollar will also be analyzed along with their implications. Future of dollar Though dollar is the first and major choice in international business and cross border trade with holding the majority of the stake in the global business scenario, but the future of dollar is not so positive. This is due to the reason that in the recent time the valuation of dollar is decreasing, which prompt the holders in the US treasury to dump their investments (Patro, Wald Wu, 2014). Thus, the more investments in dollar will get dumped, the more will be the devaluation of the currency in the global market. Another probable cause for the collapse of dollar is not having any commodity backing. Currently US economy is completely depended on the market forces, which is in line of the capitalist structure of the political system of the United States. However, complete dependence on the market forces s increasing the risk of collapse of dollar. In case of recession like in the case of global recession of 2008, dollar will get badly affected and will get more vulnerable. This will de -motivate global traders and bodies to have less reliance on the effectiveness and viability of the dollar. They will more likely to opt for other currencies with having safer options. This will also lead to the collapse of the dollar as global currency. It should be noted that major portion of the US treasury is with the foreign investors. Thus, the basic and foundation of the valuation of the dollar are depended on the foreign investments and the global market trend. This is further increasing the vulnerability of dollar. In the case of any global economic crisis or war, foreign investors will divest their investments of US treasury and it will lead to the devaluation of dollar (Beltran et al., 2013). Therefore, at any point of time, dollar will face the issue of devaluation in the global market. One of the potential alternatives for replacing dollar is Chinese Yuan. This is due to the reason that China is the major investor in the US treasury and thus holds more determining and influential power in the American as well as in the global economy. Moreover, with the rapid growth of the Chinese economy, valuation of Yuan is further increasing in the global market. Another potential alternative that can replace dollar is Bitcoin (Eyal Sirer, 2014). This is due to the reason in the recent time; crypto currency is gaining huge popularity in the global scenario. However, the security issues attached with the Bitcoin may limit its global growth. Thus, Chinese Yuan may be the most effective and suitable alternative to the American dollar. Steps by the US government It is stated by the US government that they will do anything to protect the valuation of the dollar. However, their effectiveness is limited due to the reason that majority of the American market is determined by the foreign forces. As discussed earlier, China is largest investor in the US treasury and the steps to be taken by the American government will be limited in nature. This is due to the fact that if the any steps taken by the American government cause negative implication on the foreign investors and the United States will lose the market attractiveness and will witness dumping of the investments. This will further reduce the viability of the dollar. Another reason of limitation of the governmental approach is extensive market oriented economy of the United States. America being the flag bearer of the capitalist economy is having open market economy and thus it will be difficult for the government to avoid the marketing forces in taking steps. Steps taken by the government Donald Trump recently accused China and some other key trading partners for currency devaluation in order to gain trade advantage. Moreover, American government already putted tariffs and duties on the import of the goods. This is being done in order to reduce the importance of the currency of the exporting countries and providing them less chance for currency devaluation (Handley Limao, 2013). However, this step caused huge political and economic implication due to the reason that it caused starting of trade war with China. In the current era of globalization, one cannot afford trade war and restrictions in the international trade. Initiation of the trade war with China also caused putting of tax by both the countries on import. It caused political issue between the two countries. On the other hand, global economy is getting affected from the trade war and it will lead to the restrictions on the free trade flow and international business. Conclusion Thus, it can be concluded that dollar may not get collapse in the recent time but with the growing concerns regarding the American economy, it is highly probable that valuation of dollar will get reduced. This essay discussed about the probability of the devaluation of dollar against some major currencies such as Yuan. It is also concluded that steps to be taken by the US government in protecting the valuation of dollar are also limited in nature due to the extensive influence of market forces References Beltran, D. O., Kretchmer, M., Marquez, J., Thomas, C. P. (2013). Foreign holdings of US Treasuries and US Treasury yields.Journal of International Money and Finance,32, 1120-1143. Bogdan, A., Istudor, N., Gruia, R. O., Toba, G. F., Chelmu, S., Craciun, N., ... Pasalau, C. (2014). 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