When you pop down to the supermarket to buy some Brazilian coffee, or some American chips,
or even some ah... smelly French cheese, then you've enjoyed the benefits of something called
international trade, and while you and I buy these products with these plastic-y sheets
of Aussie money, around the world most products are bought and sold between different countries
using Benjamins.
That's um US dollars.
Yep, the US dollar is the Mr. Worldwide of cash.
Its value is used to compare the value of, well, pretty much everything else.
That's why you'll hear finance buffs comparing our Aussie cash to the value of the US dollar.
The Aussie dollar was also flat, just above 67 US cents...
The US dollar has been on a tear rising, sending rival currencies tumbling against it...
Trading in our dollar put it below 67 US cents.
But why is the US dollar the king of cash?
Well, once upon a time it wasn't like that.
See, in the land before dollar, the UK's pound sterling was the global standard.
In the 19th century the UK was responsible for more than 60% of international trade which
was paid mostly in pounds, spreading the currency across the globe.
At the same time, the UK was on something called the gold standard, which basically
linked the pound directly to the value of gold.
Gold has been one of the most valuable assets recognised all over the world since the dawn
of civilisation, and the gold standard gave the pound a physical value.
So, every pound equated to 7.3 grams of gold, and by keeping an equal ratio of paper cash
and gold, the value of the pound stayed stable, making it even more powerful in the world
economy, leading to other countries stockpiling it as a safe back-up for their own currencies.
Under the gold standard, paper money could be converted directly into gold, allowing
countries to make international payments using gold instead of cash.
Soon, pretty much every other major economy joined the gold standard too, and the newfound
economic stability caused international trade to skyrocket, mostly invoiced in British pounds.
The system worked well for a while, but when World War I broke out in 1914, everything
started to crumble.
Many countries ditched the gold standard because they needed to print more money to pay their
armies and to purchase war equipment, and the UK's once strong economy was hit hard
by the destruction of the war.
Other issues like the Great Depression and the Second World War eventually saw the pound
lose its global influence and the gold standard die out.
Except in the US, sort of.
See, by 1931 the US dollar had become the leading global currency, mostly because they
were a major supplier of weapons and other goods during World War I.
Many countries paid the US with gold, and by the end of it all they held around three
quarters of the world's gold supply, plenty to back their dollars.
But it meant other countries now didn't have enough gold to back their currencies, like
the original gold standard.
So, in 1944 officials from 44 countries came together to create the Bretton Woods Agreement
which pegged the world's currencies to the US dollar, and the US dollar to the value
of gold, which was $35 an ounce.
This new agreement made the US dollar a safe and stable asset by essentially swapping gold
in the original gold standard system for US dollars.
So, countries stocked up on reserves of American bucks which were used for trade and could
be sold back to the US in exchange for gold.
Sounds great!
But the problem was that the Bretton Woods agreement actually ended up overvaluing the
dollar, and eventually there was so much US cash out in the world that the US didn't have
enough gold to cover it all.
By the late 1960s several countries were preferring to hold gold rather than the US dollar, fearful
that the dollar would start losing its value.
So, 1971 the link to gold was cut.
I have directed Secretary Connolly to suspend temporarily the convertibility of the dollar
into gold.
While it was meant to only be temporary, by 1973 the Bretton Woods agreement was dead.
Completely gone.
Eugh!
Despite that, the US dollar stayed stable enough to remain the international currency
king and is still used today.
Around 90% of international trading is done in US dollars, and countries have huge stockpiles
of the stuff in their central banks as a safe way to store wealth and to buy all kinds of
necessary things like foods, livestock and major commodities like oil.
Not just stinky exotic cheeses for supermarkets.
Ah it smells so bad, just gotta... [throws cheese]
Recently though, there’s been calls for the US dollar to be kicked off its perch in
favour of a new currency.
Spearheading that charge is BRICS.
They're a group of these nations, and 25 other nations have recently expressed interest in
joining in too.
Some people reckon they want to 'de-dollarise' as a way to strengthen their own local currencies
and be more independent, but also to side-step sanctions imposed by the US.
So I think a lot of countries have seen and observed how the dollar has been weaponised by Washington.
Which has created risk and uncertainty for trading partners.
This idea isn't anything new.
In fact, BRICS nations have been behind it since the global financial crisis in 2008.
But now 'de-dollarisation' is gaining more momentum, with some BRICS nations like China
and Russia already trading in Chinese Yuan or Russian Ruble, and Brazil and China recently
agreeing to do trade in their own currencies.
BRICS nations are even reportedly working on a whole new currency, backed by gold, to
use in the future.
So, what happens if the US dollar's reign comes crashing down?
Well, some experts reckon it could cause global economic instability since there wouldn't
be a universally recognised currency.
While others reckon it wouldn’t actually be so bad, and a bit more diversity in global
currencies could help with economic stability, instead of the world putting all its economic
eggs in one US basket and hoping it doesn't drop.
Whatever ends up happening, it won't be sudden and at the moment
there’s nothing strong enough to overtake the US dollar.
So, for the time being it'll remain the cash king.