Currency Valuation: Future of the US Dollar and Potential Replacements

This essay explores the future of the US dollar as a global currency, considering factors such as decreasing valuation, dependence on market forces, and the potential for collapse. It discusses the possibility of the Chinese Yuan and Bitcoin replacing the dollar, along with the limitations of US government interventions due to foreign influence and a market-oriented economy. The essay also examines steps taken by the US government, such as tariffs, and their implications, including trade wars. It concludes that while a collapse may not be imminent, the dollar's valuation is likely to decrease, emphasizing the influence of market forces on its stability. Desklib offers this and other solved assignments for students.

Running head: CURRENCY VALUATION
Currency valuation
Name of the student
Name of the university
Author note

1CURRENCY VALUATION
Introduction
Global currencies are always backed by commodities in order to protect it from the
possible devaluation or collapse. Traditionally the value of the currency is being protected with
the value of gold. However, economy of the United States is no longer based on the valuation of
gold; rather they are now operating as fiat based economy (Bogdan et al., 2014). This denotes
that currently American economy is based on the market supply and demand. Thus, the
vulnerability of the dollar gets increased and it is important to determine the future of dollar as
the global currency along with the possibility of collapsing.
This essay will discuss about the future of dollar and the probable currencies that can take
over dollar in being the global currency. In addition, steps to be taken by the US government in
protecting dollar will also be discussed. The efforts made by the government in past in protecting
the valuation of dollar will also be analyzed along with their implications.
Future of dollar
Though dollar is the first and major choice in international business and cross border
trade with holding the majority of the stake in the global business scenario, but the future of
dollar is not so positive. This is due to the reason that in the recent time the valuation of dollar is
decreasing, which prompt the holders in the US treasury to dump their investments (Patro, Wald
& Wu, 2014). Thus, the more investments in dollar will get dumped, the more will be the
devaluation of the currency in the global market. Another probable cause for the collapse of
dollar is not having any commodity backing. Currently US economy is completely depended on
the market forces, which is in line of the capitalist structure of the political system of the United
States. However, complete dependence on the market forces s increasing the risk of collapse of

2CURRENCY VALUATION
dollar. In case of recession like in the case of global recession of 2008, dollar will get badly
affected and will get more vulnerable. This will de-motivate global traders and bodies to have
less reliance on the effectiveness and viability of the dollar. They will more likely to opt for other
currencies with having safer options. This will also lead to the collapse of the dollar as global
currency.
It should be noted that major portion of the US treasury is with the foreign investors.
Thus, the basic and foundation of the valuation of the dollar are depended on the foreign
investments and the global market trend. This is further increasing the vulnerability of dollar. In
the case of any global economic crisis or war, foreign investors will divest their investments of
US treasury and it will lead to the devaluation of dollar (Beltran et al., 2013). Therefore, at any
point of time, dollar will face the issue of devaluation in the global market.
One of the potential alternatives for replacing dollar is Chinese Yuan. This is due to the
reason that China is the major investor in the US treasury and thus holds more determining and
influential power in the American as well as in the global economy. Moreover, with the rapid
growth of the Chinese economy, valuation of Yuan is further increasing in the global market.
Another potential alternative that can replace dollar is Bitcoin (Eyal & Sirer, 2014). This is due
to the reason in the recent time; crypto currency is gaining huge popularity in the global scenario.
However, the security issues attached with the Bitcoin may limit its global growth. Thus,
Chinese Yuan may be the most effective and suitable alternative to the American dollar.
Steps by the US government
It is stated by the US government that they will do anything to protect the valuation of the
dollar. However, their effectiveness is limited due to the reason that majority of the American

3CURRENCY VALUATION
market is determined by the foreign forces. As discussed earlier, China is largest investor in the
US treasury and the steps to be taken by the American government will be limited in nature. This
is due to the fact that if the any steps taken by the American government cause negative
implication on the foreign investors and the United States will lose the market attractiveness and
will witness dumping of the investments. This will further reduce the viability of the dollar.
Another reason of limitation of the governmental approach is extensive market oriented economy
of the United States. America being the flag bearer of the capitalist economy is having open
market economy and thus it will be difficult for the government to avoid the marketing forces in
taking steps.
Steps taken by the government
Donald Trump recently accused China and some other key trading partners for currency
devaluation in order to gain trade advantage. Moreover, American government already putted
tariffs and duties on the import of the goods. This is being done in order to reduce the importance
of the currency of the exporting countries and providing them less chance for currency
devaluation (Handley & Limao, 2013). However, this step caused huge political and economic
implication due to the reason that it caused starting of trade war with China. In the current era of
globalization, one cannot afford trade war and restrictions in the international trade. Initiation of
the trade war with China also caused putting of tax by both the countries on import. It caused
political issue between the two countries. On the other hand, global economy is getting affected
from the trade war and it will lead to the restrictions on the free trade flow and international
business.

4CURRENCY VALUATION
Conclusion
Thus, it can be concluded that dollar may not get collapse in the recent time but with the
growing concerns regarding the American economy, it is highly probable that valuation of dollar
will get reduced. This essay discussed about the probability of the devaluation of dollar against
some major currencies such as Yuan. It is also concluded that steps to be taken by the US
government in protecting the valuation of dollar are also limited in nature due to the extensive
influence of market forces.

5CURRENCY VALUATION
Reference
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