Page 25 - Issue 71

VOL.1 , ISSUE 71OL.1 , ISSUE 71
V ELITE

He outlined the characteristics a currency must
have to be considered a global reserve currency:
International trust and economic/political
stability: historically, the dollar was backed
by gold or silver.

High liquidity: the dollar is widely accepted
and easily traded globally.
3. Institutional and international law: This is
represented by international institutions and
central banks accepting the currency as a
major part of their reserves and using it in
pricing goods and international transactions.
Size and diversity of the issuing economy: In answering the question, “Why is the U.S.
the U.S. has the largest economy by nominal keen for the dollar to remain the world’s
value; China leads by purchasing power reserve currency?”, Dr. Hassan explained that
(PPP), and second largest economy by printing a $100 dollar costs only about 40
nominal value cents. Around 52% of U.S. dollars are held and
Transparency and governance: the U.S. circulated outside the United States, generating
Federal Reserve is among the most pure profit for the American economy. This

transparent globally. Its chair is appointed economic advantage makes the U.S. unlikely
for 14 years, protecting it from political to give up its currency’s global role.
swings. The Fed also distinguishes itself He referenced an article he wrote in the U.S. in
from other global banks in that the central 2006, highlighting the core American problem
bank is typically government-owned, while at that time: negative savings rates. Investment
the Fed is owned by commercial banks, continued, but it was funded by foreign
which hold a 6% stake in it. surpluses, particularly from countries
Safe haven status: in times of crisis, investors purchasing U.S. treasury bonds. Even when
flock to the dollar. savings improved to 7–8% of GDP, they later
Free convertibility: the dollar can be freely declined again.
exchanged anywhere in the world. Trump, he noted, sought to correct the U.S.

trade deficit, especially with China, by
imposing tariffs, assuming this would fix the
issue. However, Dr. Hassan rejected this
rationale, stating that low American
productivity compared to countries like China,
which has a 44% savings rate, was the real
cause.

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