Why does the US Economy matter?

"What happens in the United States really does impact the rest of the world".

The United States. The United States of America. The one type of dollar about which every single trader, consumer, and learned individual knows and worries for. In your house, you hear discussions on the POTUS elections and the changes in the USD exchange rate. But why? We don't seem to care about the AUSD, the Nigerian Naira, or even the Sudanese Pound. So what is it about the USD, which makes it so crucial for every foreign transaction, every industry in the world and every business person on the globe?

The US economy is the king. It sits at a $20 Trillion (GDP Value) value, which is $7 Trillion more than its successor, China. Before we get into the economics of it, let us understand what GDP is. GDP is Gross Domestic Product; this is a measure of the total consumption, expenditure, investments, governmental subsidies, and everything in an economy. Today if you buy one Snickers bar in your country, you impact the GDP. If you chose not to accept the Snickers bar, then you still move the GDP. The GDP is an essential quantitative value which allows the comparison between the economic condition of many countries.

The US GDP, which is the largest globally, is not shocking for most, but what made it so big? After World War 2, the global economic situation was not good. It was terrible, way worse than anything we have ever seen. The largest countries, UK, France, Belgium, Germany, Poland, etc. were in a challenging position. They did not have the funds to feed, house, and secure their populations. They needed money, and they needed it bad.

At the same time, gold settled the foreign exchange.

This means that the exchange or any currency's central value was based on the value of gold that the country possessed. This was because what is worth $100 in America is not worth the same in India. A Snickers bar in America is in Indian Rupees worth 70 INR, but it is worth 30 INR in India. I know you are confused, but this is because every country has a different economic position that does not allow everyone to have one value, globally.

Businesses will die in India if they charge the same money for their products as they do in the United States. So there is a degree of fluctuation in the pricing, and to monitor and centralise this, the global economies agreed to use gold as a standard. All currencies were valued based on the amount of gold reserve they had. The more the gold, the better.

So now, back to the aftermath of World War 2. The large countries were suffering, as they had used up all their gold reserves, they liquified their assets to have funds for the war effort. So after the war got over, countries did not have gold. They did not have any monetary value. And they needed money to save their population. So the US came into the picture, they had the most gold at the time, and they also had the most stable economic situation out of the countries that battled off in Europe during the 1940s.

So in a desperate cry for help, the US came and said, "Alright, leave gold, you can start valuing your currencies on the USD." This means that now the US which had the most gold valued its currency off of gold, and the other countries of the USD. This told that now the countries will buy USD over gold. The more USD a country has, the more the economic value rises. They have to give their notes in exchange for the USD, and that slowly and steadily improved the countries' financial positions.

The new valuation system allowed the suffering countries to have more monetary value in their currencies and facilitated the economy's fiscal methods.

All seems well and good till now, but then why is the US GDP so big? When the countries agreed to take USD as the traditional currency, they opened up international trade. At a scale more extensive than ever before, the US economy started to thrive. Remember when I said the GDP is based on consumption and expenditure? The international trade boosted this aspect by hundred folds which expanded the United States GDP rapidly.

Today, the US is the largest export destination for more than a fifth of the whole world. One country with the largest gold reserve is also the most stable and safe destination for the export. Businesses want to export there because that population consumes a lot, and it is a safe bet. The only economy which did not fall in the pandemic is the USD. So that is one reason for the economy to be necessary.

Another big reason is that money is sent abroad in terms of dollars. Gold, OilOil, and agricultural product are all valued in USD. These are because of the various policies that the countries have the USD, which ensure that the dollar controls all significant commodities. So even if you can export from China under the Chinese Yuan, the thing you are shipping is made from using Gold, Oil, or agriculturally produced raw materials, so at the end, everything is controlled by the dollar.

If you want to make cars, you need Oil. You want to make clothes you need cloth. You want to make jewellery; you need gold. And for all this you need USD. It is a monopolistic set up which allows the USD to stay at the top, and make it so important.

Everything that happens in the US impacts everyone else. Now the currencies are still valued on USD because changing this will cause stagflation (which is a position where the price levels rise and production falls causing significant issues for an economy which can take more than 20 years to come out of). Therefore, the currencies now have accepted the US economy as the kings; and focus on getting preferential trade agreements and leverages.

If there are more aspects, you know about or think I got wrong to let, I know.