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American economy suffers because dollar is a reserve currency

john_kerry america

Dollar is the currency that that foreign banks and governments hold in reserve. However, such privilege is now a burden to the American economy.

China, Singapore and South Korea suppress the value of their currency in order to increase their exports to the United States and reduce its exports to them. The result of such actions can be observed in the 2013 US trade deficit of $475 billion, while the deficit of $318 billion of the total amount was with China.

The process of managed trade means that when countries save more and consume less than they produce, then the country which issues the reserve currency must save less and consume more than they produce. This is when the trade deficits occur.

It can be concluded that America’s trade deficit can even become worse if the dollar remains the reserve currency.

The US has the ability to stop other countries from accumulating too much of reserve currency. On the other hand, in case dollar demand is reduced, interest rates could rise.

Some think that inflation could be increased by higher prices of imports.


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