United State Dollar is the legal currency in the United States of America.yhe abbreviations for this currency is the dollar sign $. To differentiate it from other currencies, this sign is inserted before the sum of its value (Duncan 16). The United sates dollar is the most used currency in international business transactions. Most countries use the dollar as the official currency. The American constitution gives power to the United States congress the mandate to control the form in which money should be presented (Feldstein 10). The U.S Dollar comes in two forms. The first one is a copper alloy coin and the second one is a pure silver coin. These are the legalized terms of debt settlement under the 5112 section of the United State Code. Sacagawea dollar is an example of the copper alloy dollar. The name given to the pure silver dollar is American Silver Eagle (Duncan 76).
Denominations are given out in form of U.S coins if they have a value equal to or less than a dollar while denominations having equal or greater value than a dollar are expressed as Federal Reserve notes. The dollars in note form is the most common in the U.S although the coins are still produced. The notes are made of a paper from cotton fiber. Most of the other notes are made of wood fiber. The U.S coins are minted by the states company known as United States Mint while printing of the notes is done by the Bureau of Engraving and Printing ( Derks 100).
Factors affecting the Dollar value
Over a long period, the US dollar has been losing its value. To evaluate the value of the dollar, there are three measurements to be considered. These measurements are treasury notes, exchange rates and the sum of dollars within the foreign nations. These three measurements are inseparable from each other. The dollar has declined in value after loosing value when compared to other countries currencies. This implies that, the dollar can only purchase less imports from other countries as compared to the total value of goods the United State exports. Inflation, debt and excessive supply of money are factors that pave a softer terrain towards the deteriorating dollar value. Inflation can be defined as the rise in the prices of goods that leads to an increased purchasing power. Inflation can be triggered by the fact when the government prints more money to curb a certain crisis within an economy. Prices shoot up so as equalize the surplus amount of currency in the market (Feldstein 56).
Deficit in the value of imports and exports causes the value of the dollar to go down. US has been undergoing a deficit in trade with some other countries within the previous times. This motivates the foreign investors, a fact that can affect the value of the dollar. When the US fails to maintain a balanced investment economy, the value of the dollar may end up going down. Foreign traders have to buy goods and services from the US so as to uphold the dollar value (Feldstein 56).
Politics in the US have effect on the dollar value as well. The government in its budget can outline for expenses that are exceeding the available cash within the state. This forces the government to ask for monetary aids from other parties hence slowing down the dollar value.
When other countries have developed a more stable economy as compared to the US, this tends to weaken the value of the dollar since other countries currencies will have added value more than the dollar (Feldstein 212).
Most countries allover the world uses the dollar as the main means of exchange in some kind of transactions. However, the Euro has become a competitor to the dollar due to its value instability. The investors tend to prefer the Euro to dollar since it is more comfortable to transact with as compared to the US dollar.
The US dollar is the world's reserve currency whereby most of the world's banks preserve a large number of the dollars as compared to any other currency. Due to their unstable value, the banks may decide to terminate the purchase of the dollars and hence causing its value to go down (Robles 14).
Stability in other countries currencies encourages foreign investors to go for an alternative currency that is more convenient to use other than the dollar. Attacks by terrorists and wars also have effect on the dollar value. The attacks cause damages that lead to lack of confidence among investors and the consumers as well. The government spends more on the damages a fact which was out of the budget and so a deficit in the dollar value. Investors will consider the geopolitical events within the US nation. If there is the possibility of conflicts occurring, the investors may not invest in the nation and hence affecting the dollar negatively. In the businesses, perception is definitely the reality (Feldstein 229).
Lack of sufficient security within the US money management system makes foreign investors to flee away for their money safety. This contributes to the falling value of the American dollar due to few investors. Falling of interest rates calls for low incomes for investors. The dollars' value is lost and investors may diversify to a more profitable currency. Unattractive interest rates of the US dollar in other countries can lead to investors running away from it to better rewarding currencies. Reports about fluctuations in the dollar value leads to the investors flocking to the leading currency since investors like being on the front leading line (Duncan 184).
Weather is also a contributing factor towards the value loosing of the dollar. Unfavorable agricultural conditions force the farmers to get help from other countries so as to meet the needs of the US people. This leads to the value of the dollar going down while on the other hand the trade deficits opens up further. Excessive hot summers in US contribute to fall in dollar value since the costs of energy shoots up causing strains in the economy because the energy is mostly imported from other countries (Robles 45).
Effects of losing value of the dollar
Oil prices are forced to go up since it is marketed on dollars and since they have reduced in value, the oil prices are forced to shoot up so as to cater for the lost dollar value. When the dollar value deteriorates, the price of imported goods soars up and this causes the inflation in America. When the value of the dollar is weaker than other currencies, the price of the foreign stock rises when compared to the US stock.
How to help increase the value of the dollar
Reduced prices of imported goods reduce fluctuation of the dollar. The government should keep a detailed credit history of the dollar. This will lead to the dollar sustaining its value without falling. Developing a stabilized political structure helps increase the value of the dollar. The investors will have faith with the calm state of country and will invest more therefore heightening the dollar value ( Derks 20)
The government should regulate the frequency in which it prints the currency. Each currency printed reduces the value of the value. For the value to go up, fewer notes should b printed.
The interest rate of the investors should be considered so as to increase the dollars value. In addition the American government should encourage its citizens to increase their savings within the nation. This will help on boosting the dollar value.
Adequate spending of the dollar can help stabilizing the dollar value too. Slow spending can and fast spending on the dollar causes negative effects on the dollar. Investors should be encouraged to adequately spend so as to improve the dollar status (Feldstein 410). If the Americans purchase imported goods in lump sums, this results in a deficit in trade world that reduces the dollar value.
The United States dollar has for long been regarded as the legal currency across many countries. It appears in form of silver and golden coins as well as fiber made notes. However, the dollar has been facing various drawbacks in the market areas. Its value has been fluctuating at a high frequency due to some factors. The American government has observed some measures to uphold its value. Falling of its value has impacted various effects on the American economy. This calls for more government aids to rescue the down spiraling economic state of the American states (Duncan 244).