Many of us are familiar with the idea that the dollar is the global reserve currency. This means that when other countries conduct trade, goods are often priced and paid in US dollars, even when the US is not involved in the transaction.
This gives the US tremendous power both globally and at home. Internationally, having the global reserve currency gives us immense policy influence—for example, financial sanctions. When we impose sanctions on Iran, we can basically cut them off from the global banking system entirely by cutting off their ability to use the dollar and the SWIFT system in international trade. By essentially being able to ban them from using the dollar, they are cut off from the global economy, which is overwhelmingly priced in dollars.
But why is the dollar the global reserve currency? Well – one huge reason is because of oil. Oil is priced…
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