U.S. Dollar & The Great Recession

The Evolution of the U.S. Dollar

The U.S. dollar has transitioned from the gold standard in 1971 to become a global currency accepted for trade worldwide. It holds immense power as the most popular global currency and has been adopted by several other countries.


Today, the U.S. dollar plays a crucial role in international trade.

U.S. Dollar: Global Currency

The U.S. dollar is the most popular global currency.
- It is widely accepted in international trade, making it a preferred medium of exchange.
- Its stability and widespread use contribute to its dominance.

The dollar's influence extends beyond the United States, impacting economies worldwide.

Many countries hold U.S. dollars as foreign reserves. The dollar's status as a global currency has significant implications for global financial markets and trade relationships.

• Countries wanting gold in exchange for dollar led to the abandonment of the gold standard for the U.S. dollar

• President Nixon was prompted to abandon the gold standard.

The initial abandonment of the gold standard created stagflation, but over the strength of the U.S. economy has resulted in a strong dollar.

U.S. Dollar and the Buisness Cycle

• Periodic economic crises in the United States, such as in 2008, affect the dollar's value in international markets.
  

  • Real estate prices ballooned, in part by lax lending 

  • Banks lowered their standards because companies would bundle the mortgages and sell them as mortgage-backed securities (similar to a bond)

  • The easy profits encouraged banks to generate more mortgages by lowering their lending standards, which drove house prices even higher 

​Real Estate Bubble Burst

• When real estate bubble burst, falling prices lead to foreclosures

• Mortgage-backed securities changed from “hot-investment” to “toxic-asset” 

• Critics say that the crisis could have been avoided if government watchdogs had done their job properly, others say deregulation allowed banks to take risks that led to the crisis