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Trading is usually taken up to make a profit. this is something that all of us know. When the trade is between two countries then the settlement must be in a currency that is common to both.
Earlier the USD was the most stable currency and hence all countries took up the USD as the base currency for all trades. nowadays with the value of the dollar changing so frequently that too so badly people have given up using USD as the base and these days they are using the Euro. Euro is much more stable than the USD now and most of the foreign exchange trades happen in euro's these days.
Before the dollar, GOLD was the BASE CURRENCY. Every transaction was Gold Denominated.
Political factors are the primary cause
The international clearing and settlement for world currencies mainly centered at New York. Us dollar, among other generally accepted currencies, is one of the commonly accepted currency throughout the world by virtue of its prolonging as such for decades.
In MANY parts of the world you cannot get your home currency exchanged for the local currency for so many reasons which are very difficult to easily sorted out. The difficulties are overcome by home currency exchanged in lieu of the commonly accepted currencies that can have exchange features throughout the world. The money value of exchange of goods and services need be distributed among the beneficiaries and Balance of payment mechanism works on a common clearing process to know How much a country owns and how much it owes so that the settlement should be compensated and equalized through repeated transactions.
Agree Divyesh ...good explanation.
I don't answer to save my life :D
Agree with the answer given by Divyesh Patel, Finance & Administration Manager
agreed with all ladies and gentlemen
Good Day!!!
I endorse the views of Mr. Ganguly.........
Answer agreed with colleagues and add them
Because the dollar is covered legally under international conventions
There had to be some BASE CURRENCY for trading across various nations. Earlier GOLD was the BASE CURRECY. Every transaction was Gold Denominated. The problem of USA is a recent problem. When Base Currency was decided the world did not anticipate such problems with the USA. Secondly, if we switch to different currencies for different nations, there will NOT BE ANY PARITY. Exchange rate will play a spoil sport here. The World needs UNIFORMITY in the Trasactions. U must have heard of the Benchmark Pricing system. This system is used buut different nations negotiate deals at international levels. Many countries participate in such deals. Just imagine how difficult it will be, if each nation quotes a Price in their own Currency. There will be not uniforimity. We will not know who has quoted high or who is quoting low. Hence to over-come these difficulties, we have a BASE CURRENCY SYSTEM, and this base currency at the moment is USD.
