Quote:
Originally Posted by crestliner
With the US dollar being weak and getting weaker as we print more and more and more one question comes to mind. Why do foreign countries that we send aid to get paid in US dollars. Most dont use US dollars as their currency so why do they get US dollars. US hard cash is too easy to use in other places and be stolen etc. China uses the yen not us dollars.Why do they get US cash on demand.? Dont forget anyone with us dollars can use it right here in the USA to manipulate our own supply and demand...This is hurting us.
|
As mentioned by other posters, USD is the world's standard currency especially since oil is priced in USD and the US (at least historically) has been the most dominant and stable country. This creates demand for the USD not just to settle transactions but to as safe currency for countries to hold currency/bonds in.
In terms of giving foreign aid to another country, we can only give them USD because that is what we generate. If we were to give them a foreign currency then we would have to take our USD and sell it for foreign currency, then give that foreign currency to them. It is the same thing as giving them USD and having them sell it/covert it. Foreign transfers are a tiny part of the US economy, however.
In terms of foreign trade, when the US buys an import it pays with USD. An exporter to the US will then have to sell these USD for foreign currency to use the money back home. This has the effect of weakening the USD and pushing up the value of the foreign currency being purchased. This is also why exporters always want a low exchange rate because a high exchange rate makes goods more expensive in foreign markets. Now to counter this weakening of the USD, there must be demand to buy USD, otherwise the USD would plummet. The demand for USD comes from foreign investments into our country. Foreign investors invest in stocks, capital goods, and largely USD bonds. If the US continues to falter and cannot control its debt/deficits, bond holder may sell the bonds and the USD would plummet. This is a real danger and I believe China holds something like 10% of the US bonds.
The Federal Reserve also has the ability to print money so to speak. They can pay off US debts by creating USD. Putting more USD in the system also helps the economy because people have more money to spend but creating too much USD can result in inflation, one concern many have about the long-term effects of all this Quantitative Easing (i.e. the USD will not be worth that much eventually). It is appropriate to create money but only enough to support a growing economy to sustain itself, that is not what has been going on, however.
It's a complicated system but I hope this makes sense.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
