Tag Archives: currency

Why is the US dollar still the currency that matters the most globally?

My answer on Quora: Of all the currencies around the world, the US dollar matters the most globally because it is most readily available, most widely accepted in international transactions, and, crucially, the most trusted. If little country A is selling a commodity, for example, to little country Z, that transaction is most likely to […]

What are the pros of having a world currency?

My answer on Quora: Let’s define a world currency as a widely used currency for both international transactions and official reserves. An alternative interpretation would be a single currency for the whole world (see here for more on that). Direct benefits include very little exchange rate risk in international transactions, importing goods using your own […]

Why would a government fix an exchange rate?

My answer on Quora: A Central Bank may decide to fix the exchange rate of its currency relative to another currency to (1) anchor expectations and provide stability, (2) reduce fluctuations in import prices for local consumers and producers, and (3) reduce exchange rate risk in foreign financial transactions. Fixing the exchange rate comes at […]

Can devaluing a country’s currency increase its foreign reserves?

My answer on Quora: It depends on the size and direction of the pressure on the currency before the devaluation, and how close the new value of the currency is relative to its market value. First, a devaluation implies that a central bank is moving its currency from one fixed exchange rate to another one where it is worth less, relative to the currency […]