How Important is the US Dollar to World Trade?

Obama Dollar

 

 

We hear the stories now and then that some people, outside the US, propose that we change the world currency from the US dollar to say the Swiss Franc, the Euro or even the Chinese Yuan. This talk usually starts after moves by our Federal Reserve to increase or decrease liquidity. The discussion is really foolish. 

The US dollar leads the world for global payments, with a 45% share in 2015, compared to the Euro at 28% and the Chinese Yuan at just 2.2%. However, the use of the Yuan in global payment currency did almost double in the last year. That is a huge increase, however still a tiny factor. 

Our strong dollar has weakened the Yuan from 6.05 Yuan to the dollar in the last year to 6.26 currently. A strong dollar lowers the price of oil since oil is priced in US dollars worldwide. A Federal rate hike in 2015 will further strengthen the dollar. Some of this will come from foreign investors who are currently getting .05% on their foreign bonds vs. our 2-3% yield on our 10 & 30 year bonds. 

A strong dollar has both plus and minuses. In general, modestly rising interest rates, low inflation and a strong dollar have historically been very good for the overall stock market.  Besides its also very nice when you travel to Europe and you get a 25% “discount”.

If you are looking for a way to invest in the strong US dollar, check out this article I wrote in December 2014. The UUP has risen 10% alone since I wrote that story.

King dollar is here to stay.

 

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