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From the free silver policy issue of the 1800s to the Bretton Woods agreement of 1944, America has always had differing views on how the dollar should be valued and leveraged, as well its role in the global currency exchange. Ever since the eve of World War II, the U.S. dollar has had notable domination in the international marketplace. In nearly all transactions made using more than one currency in the past three years, the dollar was required as a conversion factor to complete trades. The U.S. dollar, for quite some time now, has been the world’s reserve currency. In Currencies After the Crash, Sara Eisen explores the impact of the world’s strongest currencies, the possible ramifications of highly leveraged monies, and the perilous yet profitable realm that is the foreign exchange market.
Eisen starts by briefly explaining the fundamental basics of the global currency system. America has had a gold-backed currency since the Bretton Woods agreement. Basically, this required that every U.S. dollar in circulation would have an equivalent balance of gold backing it, promoting a disciplined currency network. Based off of this gold-valued currency, the rest of the world would then adjust their currencies accordingly. Thus began the reign of the American dollar as the currency that stands at the center of the foreign exchange market. Presently, the American dollar, Chinese yuan, and euro hold the preeminent positions in the diurnal functioning of the global economy. However, the gold-backed system was abolished in 1971 by President Nixon, when it became apparent that more flexibility was required to let the world economies develop and grow, and so the modern-day fiat currency was born. With the creation of a paper currency came the birth of several national banks and the World Bank along with its governing body, the IMF. Instead of gold, money was now backed by the promise of the United States government and the Federal Reserve. Banks and individuals could now trade currencies on the forex market- the most liquid market in existence. Central banks and multinational corporations could now hedge their exposure abroad in order to shield themselves from fluctuations across currencies. America’s free-floating currency was a precursor to another massive convergence: the 1999 launch of the Eurozone and its shared currency, the euro.
Although a money system like the Eurozone does eliminate certain conceivable conflicts between the countries that share it, Eisen questions the long-term stability of such a system. How long can the bailouts last? Pretty soon, the PIGS acronym will have to be expanded to include the growing list of nations in the Eurozone that have defaulted, or are continuing down the path to do so. Despite the Eurozone's recovery period, Eisen predicts the real trouble for the euro has yet to arrive.The ECB is only useful for the countries that benefit by its policies, and that number is slowly dwindling. Since the financial crisis of 2008, nations with larger economies and the EU have become weary toward investing in U.S. treasuries, as it has become more of a liability than the safehaven it used to be. The U.S. dollar has played a conspicuous role in the international market for almost a century now, but will it ever lose its invaluable reserve currency status? How long before another financial collapse, and which country’s currency could handle center stage, if not America?
Eisen answers all of these questions and more as the book moves along. Ms. Eisen has an astonishingly adept understanding of currencies, both domestic and international. This book is written so well that anyone, without any previous knowledge of the markets whatsoever, could easily understand every concept. I encourage everyone to read this book, as it is an enlightening read about the paper that is such a large part of our everyday lives.
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