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Home Financial Literacy

Why we prefer dollars to other currencies

Emmanuel Abara Benson by Emmanuel Abara Benson
October 3, 2019
in Financial Literacy
Central Bank of Nigeria, Foreign exchange market, Naira vs dollas, IMF, Foreign Reserves, External reserves, CBN, Why do we all love the dollar? 
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Assuming someone wakes you up one morning and asks you to explain why you prefer dollars to other currencies, chances are you will smile broadly and answer thus: “because it’s money na. Who doesn’t like money?” But seriously, why do we like the dollar more than our very own naira?

For many years, the dollar has been the most preferred currency in the world. According to data obtained from the International Monetary Fund’s COFER, many countries of the world prefer to keep their external reserves in dollars. The data shows that out of the world’s leading currencies such as the Pound Sterling and the Euro, the dollar holds about 61.63% of all the allocated foreign reserves as of Q2 2019.  

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Why is this the case? 

Well, it’s all about trust. The US currency is probably the only currency in the world that is not backed by any gold or silver reserves, as it’s often the case with other currencies. This has been the case for many years, partly due to the country’s hegemonic powers and strong economic might.  

[READ MORE: If this doesn’t encourage you to start investing today, nothing ever will!]

Financial expert Kalu Aja, explained yesterday that people around the world have developed a very strong confidence in the United States Government and its ability to repay debts as and when due. Thanks to the country’s strong economy, it is assumed that the US dollar will always be strong and valuable. And it has, indeed, been valuable for long and will probably continue to be for years to come. 

The almighty US Dollar…

Still the preferred currency in the world.

Why?

Full faith and confidence in the US Government to repay debt, note Currency is simply paper, when you hold Dollar, you give your assets to the US government for "free" or a coupon if you hold bonds pic.twitter.com/PeehwipLne

— Kalu Aja (@FinPlanKaluAja1) October 2, 2019

Still on why the dollar is beloved

 For people living in places like Nigeria where the inflation rate can often be stubbornly high, the dollar can also be used as a hedging tool. This can be  achieved by simply buying more dollars and by so doing converting your naira to dollars. Doing this helps to ensure that the value of your savings is not eroded due to the devaluation effect of inflation. 

So, do you love the dollar?

Of course, you do! The very fact that you can use this globally-recognised currency anywhere you go in the world is enough reason to love it.  


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Tags: COFERInternational Monetary FundKalu AjaOn the Money
Emmanuel Abara Benson

Emmanuel Abara Benson

Emmanuel Abara Benson is an experienced business reporter and editor. He currently edits articles at Nairametrics. Reach him via email on Emmanuel.abara@nairametrics.com and follow him on Twitter @Mr_Abara for his personal opinions.

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