Business review

Q: Chinese currency replace American dollar as the world currency. EXPLAIN.

A: There is no agreement among nations that the currency of one nation will be the world currency. From 100 B.C. (Before Christ) up to the 10th century, the places slowly growing into European nations (U.K, Germany, France, Spain, etc.) were colonies of the Roman Empire. At that time, an Austrian trading in Poland, Egypt, Persia etc. can pay in Roman coins anywhere because the world knows the Roman Empire is rich and all nations will accept all the time anywhere, Roman coins. Traders in Poland, Egypt, Persia will not accept the Austrian coin as payment because no other nation will accept it. If a Polish accepts the Austrian coins, goes to Syria, buys rugs and pay in the Austrian coins, the Syrian seller will not accept the Austrian currency because the Austrian coins will only be honored in faraway Austria. From the 17th century up to 1940, the world currency was the English pound, because one fourth of the world were then UK colonies (U.S., Canada, Caribbean, Africa, Middle East, Afghanistan, Pakistan, India, Malaysia, Burma, Hong Kong) and UK was trading all over the world. A Thai must buy UK pound if he is outside of Thailand so that he can pay for his food, transportation, implied goods, etc.

Q: Ho Hum

A: After 1945, the only super powers were US and Russia. Russia was busy colonizing the nations it liberated from Germany. In 1945, Europe (UK, Germany, France, Italy, etc.) and Asia, (China, Japan) were flattened, the 1939 to 1945 war destroyed its people, economics, farms, factories, ports, war infrastructures. America revived these dead and dying nations (except China) by lending them dollars to buy American food medicines, construction machines, factories, and so that these nations will have money to lend to their own people. America won the goodwill of the world, although it had a selfish reason. If war breaks out, the front line will be Europe and Asia giving. America had time to prepare. The world continued using dollars for international trade and business even though the currencies of some nations were already strong (UK, Germany, France) in the 1950s.

Q: Why?

A: Beginning the 1950s we became world trade conscious. We learned that in international commerce, nations will accept only as payment for the goods, services they sold the currency of a nation that is politically stable, with a big population, strong economy, large consumer market, powerful military, high standard of living. Only America had all that. Egypt bought cotton from India and paid in dollars. India knows that if it will buy rice from Vietnam, the dollars it received from Egypt will be accepted by Vietnam as payment for the rice. Lesson, the world trusts the US dollar because it knows America will not intentionally reduce the value buying power of the dollar so there is currency stability.