Why the Dollar Remains the World’s Reserve Currency

America came into the Second World War two years after it started, but before that it sold large quantities of American goods to the Allied forces: weapons, war materials, ships, and so on. The bills for all these products and commodities were settled in gold, and American gold reserves were the highest in the world.
By 1944, when a victorious outcome of the war was fairly predicted, representatives of the Allied nations and their central bankers met at Bretton Woods in New Hampshire, where it was agreed that (a) the US dollar would be accepted as the settlement currency for international trade; (b) that the US dollar would be redeemable in gold on presentation at the fixed rate of $35 to the ounce; and (c) the International Monetary Fund (IMF) would be formed to ensure that the US behaved itself and maintained the agreed ratio by controlling the supply of its dollars.
Gold: The World’s First “Reserve Currency” This is how the US dollar became the world’s ‘reserve currency.’ This term is derived from the fact that the original reserve currency was gold – in the sense that trade debts were settled from the debtor country’s gold reserves.

This post was published at Ludwig von Mises Institute on Nov 19, 2016.