Macroeconomics - US Dollar as the Basic International Currency - Dissertation Example

The bubble blew up first in one place and then in another, moving around the globe” (Wade 2008, p. 40). Unfortunately, most affected by the global economic meltdown are the ordinary people who are struggling and bracing themselves for further economic downturns. In this condition, the role of the US Dollar as the basic international currency is a source of concern for financial institutions and countries across the globe. Since the US dollar is the main reserve currency of many countries around the globe; reserve management plays a crucial role in assisting the country during the global economic crisis (Obstfeld and Rogoff 2009). Self-insurance, which means the large stock of international reserves in time of stability, may enhance the financial stability of a country. However, in a system in which many countries hold their reserves as their form of liquidity insurance, it has a destabilizing effect (Obstfeld and Rogoff 2009). As such, understanding the role of the US Dollar in today’s monetary system is pivotal in determining and developing appropriate national financial policies deem responsive to issues arising during times of financial uncertainties and instability.

1.1. Objectives of the Research

Considering the status of the US Dollar as the basic international currency, the condition of globalization, and its ensuing interdependence among countries, especially in financial and economic activities and transactions, the following are the objectives of the research.

• To understand and examine the role of the US Dollar as an international currency.
• To determine its future role in the international monetary system.
• To discuss the role of the US Dollar as an international medium of exchange, as a store of value, an anchor currency in the exchange rate regimes, and its use for Invoicing of Exports
• To validate the use of the US Dollar as a primary currency in official foreign exchange reserves and as transaction currency in capital and foreign exchange markets
• To explore other feasible alternatives to the US Dollar as an international currency
  
  1.2. Research Questions

The two primary questions of the research are (1) what is the role of the US Dollar in today’s international monetary system. In addition, (2) What are the future prospects of the US Dollar as an international currency? The following sub-questions will also be addressed in the study. These sub-questions are raised in order to clarify the two primary questions of the research.

1. As a dominant international currency, do the US gain economic benefits?
2. What is the effect of the current global economic downturn on the US Dollar?
   
   1.3. Significance of the Study

This study is significant because of the timeliness of the issues that it seeks to address. Likewise, it is significant because it intends to clarify factors that are critical in the understanding of the position of the US Dollar in the context of the global economic slump. Finally, this research is of value because it will attempt to offer an alternative that may help in addressing the concern pertinent to an international monetary system.