Pillars of stability upholding currencies

Greenback enjoys the privilege of a global currency. Albeit, a few more currencies have stayed put stronger than greenback, over the decades. Its astonishing that, the globally accepted currency does not occupy the chair of ‘world’s strongest currency’. Contemplate about ‘which is the strongest currency?’….( not to consider virtually currencies in gestation) Even today, Cryptocurrencies lack lusture, owing to dearth of sovereign backing. Their value might be inordinate, but their acceptance stands restricted.

What are the fulcrums determining the stability of a currency?? Primarily, faith in the government backing the currency. Economic indicators like trade deficit play a secondary role. Financial mighty of a monetary authority in terms of yellow-metal holdings, forex reserves etc are tertiary. Remarkably, India’s forex reserves touched mid-way trillion recently. The determinants are not restricted to the ones mentioned here.

Stability : $ There has not been an instance of devaluation of greenback, in the past. Greenback economy often ends up with a trade surplus, ensuring demand for its currency stays buoyant. Statistical data prove that $ circulation outside the contours of US value up to 60% of the aggregate $ in circulation. In fact, greenback is the world’s foremost reserve currency. Moreover, do give a check on the list of countries which have adopted greenback as their official one. Its not just the United states. Federal reserve, stands numero uno in gold reserves, followed by Bank of England. All these disseminated factors, coil together to stabilise the greenback. OPEC countries have pegged their currencies  to greenback, to curb volatility.

Answering the question, in the maiden para – ‘ Kuwaiti Dinar’ is the strongest currency in the world, incumbent. A kuwaiti Dinar fetches 3$ (approx) as per prevailing exchange rate. Contemplating what is the significance behind kuwaiti Dinar’s strength??? The answer is ‘petrodollar’.

What is petrodollar?? US $ earned as quid pro quo for oil exports by countries is termed as petrodollar.The pre-eminence of greenback has made Oil exporting nations to price the same in  $ terms. Keeping in mind, the limited size of Kuwait economy, the necessity for imports stands receded, while exports of ‘liquid gold’ stands unabated. Pegging the domestic currency to $ is at the discretion of a sovereign. But maintaining the same over the course of time, is an arduous task. Fortunately, OPEC countries have been selling their family silver (Liquid gold) in excess quantities to succour the pegged rates. Bahirini Dinar, Omanian rial are few other currencies stronger than the greenback.

With the onset of fueling automobiles using electricity based sources, the petrodollars have started to shrink. Comprehend about why Saudi Arabian government was to ready to part with its family silver ‘ Aramco’ (through listing in its bourse) – we will understand the shrinkage in its crux!!

Arunachalam Sivaraman

Published by adithyaarunachalam

I'm a millennial, from Chennai, India. Passionate about building up a career in finance, I follow and stay abreast on news feeds. I'm a novice blogger, So feel free to pass on your conjecture to me @adithyaarunachalam@Gmail.com

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