Getting to Know the USD.

Did you know that the nickname “Buck” for the U.S. dollar originated from buckskin, which was a common medium of exchange when the early American settlers traded with the Indians?

Even after paper currency replaced buckskin in the barter system, people still refer to the medium of exchange as bucks!

Check out these forex-related properties of the buck:

Liquidity is my thing!

A ginormous amount of currency transactions every day involves the USD.

Commodities like gold and crude oil are also denominated in dollars.

During the Asian session alone, the dollar takes up around 93% of all the currency transactions!

To put this in perspective, take the New York Stock Exchange and the U.S. bond market for example.

The value of the companies listed in the NYSE amounts to $28.5 trillion, about 78% of the size of the world’s $36.6 trillion stock market.

Similarly, of the $82.2 trillion value of the global bond market, the U.S. takes up $31.2 trillion.

Every single transaction there, in some way, involves the USD. How’s THAT for liquidity?

The Fed and the U.S. government believe I should remain strong

Over the past few decades, the Fed and the U.S. Treasury have kept a “strong dollar” policy.

They believe that monetary and fiscal policy should be geared towards a strong exchange rate of the USD, as it would benefit the U.S. and the rest of the world.

The currencies of many emerging countries rely on me to determine their value

How often have you heard the phrase, the dollar is the world’s reserve currency?

Well, the reason behind this is that some countries actually peg their currencies against the dollar!

When a country does this, the government agrees to buy or sell its currency at a fixed price versus the dollar.

While the government can increase and decrease the supply of money, they are still subject to having the equivalent amount of dollars in reserve.

This process magnifies the importance of the dollar around the world because this means that some economies are entirely dependent on the dollar!

If the dollar’s value were to stage a massive fall, it would produce a wide-reaching negative effect in all the other countries that are pegged their currency on the dollar.

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