Internationally, can’t major commodities like crude oil be traded in US dollars?
Why is trade done in US dollars
It can be freely converted. It is enough to get the right answer to the question of what is the benefit of it. For many years, the dollar has been the reserve currency and trading currency of many countries. Therefore, business is going on very smoothly.
Our country is earning huge profits from the export of IT services. The reason for that is the dollar.
Would the same level of profitability be achieved if the dollar were replaced by a currency like the ‘BRICS’ that Donald Trump is now raving about? Not likely.
It was Brazilian President Lula who lit the ‘BRICS’ fire. It is wise for our Foreign Minister Jaishankar to stay out of it.
Why do people trade in USD
There are several main reasons why people trade in the US dollar
Global Reserve Currency,
The US dollar has been the world’s primary reserve currency since World War II. This means that central banks and financial institutions around the world hold the dollar as a safe haven for international trade, to stabilize their own currencies, and as a safe haven asset.
Dominance in International Trade,
A large portion of global trade, especially in commodities such as oil, is conducted in the US dollar. This makes it necessary for businesses and countries to hold and trade in the US dollar to participate in these markets.
Deep and Liquid Financial Markets,
The US has the largest and most liquid financial markets in the world. This makes it easy to buy and sell the US dollar. This makes it attractive to investors and traders from all over the world.
Stability and Trust,
The US dollar is generally considered a stable and reliable currency, backed by the strength of the US economy. This instills confidence in its value and encourages its use in international transactions.
Convenience, Due to its widespread use,
it is often convenient and efficient to transact in the US dollar to make transactions with people from different countries.
Investment Opportunities,
The United States offers a wide range of investment opportunities in the US dollar. This attracts investors to diversify their investment portfolios or to earn potential income.
Hedging and Speculation,
Traders and investors trade in the US dollar to hedge against currency fluctuations or to speculate on the future value of the dollar.
Official Use,
Some countries use the US dollar as their official currency or peg their own currency to the US dollar for stability.
Historical Legacy,
The dominance of the US dollar is also a result of historical factors. The economic and political power of the United States, and agreements such as the Bretton Woods Agreement established the central role of the dollar in the global financial system.
Network Effects,
The widespread use of the US dollar creates a network effect. That is, its value and utility increase as more people use it.
In short, the US dollar’s status as the global reserve currency, its dominance in international trade, the depth and liquidity of US financial markets, and its stability and reliability contribute to its widespread use in trade and international transactions.
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