Why is the dollar the most powerful

Rising dollar rateThe World power of U.S. dollar

While the Turkish lira is currently falling dramatically in value, the American dollar is becoming more and more expensive - and therefore more and more powerful. A currency that is already the most influential in the world anyway.

The fact that the dollar is currently so popular is due to the monetary policy of the US Federal Reserve System. It has cut back investments and prefers to withhold the dollar. This makes the supply of dollars more scarce in the market. At the same time, the Fed raised key interest rates. That makes investments in the dollar from outside more attractive again, because investors naturally want to get the highest possible interest.

"Put simply, this means that investors prefer to invest their money in safe projects in the US and not in politically insecure emerging countries."
Katja Scherer, business journalist

At the same time, the US economy is better than expected. This also strengthens the currency because the demand for US dollars is increasing. However, because all of the world's important business, such as the oil business, freight rates in shipping and also business between banks, are usually carried out in dollars, the strengthening of the dollar has global effects.

"This affects the emerging countries negatively in particular. In other words, countries like Brazil, Argentina or Turkey that are currently catching up economically."
Katja Scherer, business journalist

Because investors now prefer to invest their money in the US rather than in these emerging markets, there is less money available there. For example for new infrastructure projects.

"The status of the dollar as the global reserve currency gives the White House additional leverage."
Katja Scherer, business journalist

With the strong dollar behind us, pressure can be exerted on other countries. With regard to Turkey, this means that with the announcement that US President Donald Trump wants to double tariffs on steel imports from Turkey, the value of the Turkish lira has fallen rapidly.

The result: many Turkish companies have taken out their loans in US dollars. With the loss of value of the lira, these loans can hardly be paid back. Donald Trump is thus hitting the economy in Turkey even harder than the increased tariffs alone.

US dollar currently unrivaled

It would be desirable to counter this market power of the dollar, explains economic journalist Katja Scherer. However, the prospects for this are extremely poor. Because all important business is done in US dollars.

What is needed is a currency that investors have as much confidence in as they do in the dollar. The euro is currently not a competitor.

"The problem is: At the moment there is no alternative. The euro zone is now not considered the safe haven."
Katja Scherer, business journalist

Only in China are there efforts to establish the currency internationally. In order for the yuan renminbi to really represent an alternative to the dollar, the Chinese financial system would first have to be made more transparent and the market more open to foreigners. Processes that cannot be implemented so quickly.