The US is by far the biggest economy in the world. Its financial markets – be it equity, bonds or derivatives markets – are the largest and most liquid. The Greenback is the most important transaction currency. Many currencies in the world – be it the euro, the Chinese renminbi, the British pound or the Swiss franc – have actually been built upon the US dollar.
The world is effectively on a US-dollar-standard, and the US Federal Reserve (Fed) has risen to the unofficial status of the world’s central bank. The rise of the Greenback has to a large extent been propelled by international banking, which has basically ‘dollarized’ in terms of its lending and issuing activities.
The Fed Sets Global Policy The Fed’s policy not only determines credit and liquidity conditions in the US, but does so in many financial markets around the world as well. For instance, movements of long-term US interest rates regularly have effects on credit and equity markets in, say, Europe and Asia. The Fed’s actions are the blueprint for monetary policymaking in many countries around the world.
This post was published at Ludwig von Mises Institute on February 13, 2017.
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