Money And Finance On The Periphery Of The International Dollar Standard
The world has been a depicted as a world of competition in almost all fields. The numerous businesses in operation in the global world are stiffly competing with each other to capture the largest markets. This competition to market superiority in general is spread over all market sectors of goods and services. The financial markets are some of the unique markets that exist in the business sectors. They are quite significant not only within a nation but also in international operations. The money and financial markets are used for international and regional money exchanges.
The exchange of money from one currency to another in such financial markets has over the years been a challenging issue leading to controversial matter on the reserve currency. The issue of reserve currency has for a long time raised a heated debate. Since the development of the international financial markets, dollar currency has served as the reserve currency. Throughout the 19th century up to date, dollar has maintained its position of reserve currency due its high liquidity rate together with the large market in which it is traded.
Despite its position as reserve currency, the dollar currency has always been wavering having falls and rises due to many factors that surround the financials markets. Such factors like bankruptcy on bank crisis, economic fluctuations and other kind of recession in countries has always affected the monetary and financials markets. Why do the world financial markets have to continue holding on a currency as reserve currency which is fluctuating like any other currency? The reserve currency position has several roles to the world financial markets.
The roles attributed to reserve currency have therefore attracted many countries to have admiration of their currencies to occupy such as position. Reserve currency such as dollar has been used as medium of exchange and store of value in all nations of the world. The dollar currency in this position as reserve currency has been used both for official purposes and also in the private sector to serve almost similar related purposes. (Galati and Wooldridge, 2008) While dollar in the reserve currency position has always fluctuated, the euro has been threatening its long established pre-eminence.
The euro strength has being seen as growing up following the formation of European monetary union to boost the trading of euro in the European region and other parts of the globe. The euro has gained much momentum and thus many people see it as a threat to outdo the dollar performance in the financial market. The growing strength of the euro has thus led score of individuals to predict that it would challenge the dollar in the financial market weakening its usefulness as reserve currency.
There is much support on this point by many results showing that euro shares has been increasing in the recent financial market than it was before; while the dollar shares are drastically decreasing. What may then euro not a reserve currency? Perhaps, are the determination procedures of reserve currency okay? (Galati and Wooldridge, 2008) Although the euro is predicted to challenge the dollar at one time, the attainment of this prediction might be a mere nightmare.
The dollar long established history makes it to have more advantages than the euro since it earned its popularity after the Second World War through the United States campaigns. The introduction of euro in the reserve currency position is faced with numerous obstacles. The introduction of euro as reserve currency is assumed that it would induce high chances of problems bringing the financial market into controversial state. This would bring confusion of exchange rate and store value in reference to two reserve currencies.
Besides, the communication of financial market would be sophisticated in matters of operation. How can then other kind of currencies be introduced as reserve currency without causing trouble? (Galati and Wooldridge, 2008) In general, the dollar reserve currency is viewed to have several merits over the euro. These advantages are based on very robust factor considerations both useful for determination of reserve currency. The dollar shares are still leading in the world market implying that the U. S outputs and trade are beyond comparison.
Moreover, the U. S micro economies stabilities, financial market development together with their network externalities have are incomparable with those of the European region. Thus, this diminishes the use of euro as reserve currency. However, euro and any other currency would only be thought of to act as reserve currency after performance of the countries on such factors exceeds those of U. S. Reference: Galati, G. and Wooldridge, P. (2008): international journal of finance and economics: Wiley InterScienceSample Essay of BuyEssay.org