In some of the countries that are using our currency, the value of American coins and bills is simply whatever someone feels like paying for any given items on any given day. Why our Federal government isn’t pressuring the World Bank and its subsidiary agencies to force some of the countries in the developing world to either establish their own currencies or to sign on to regional currencies?
If you ask 100 of the worlds’ top economists what they feel that the implications of foreign countries using the U.S. Dollar as their currencies are on our economy back in the homeland are, you’ll likely receive 100 different answers. It’s an issue which is not often closely studied because it is almost impossible to study accurately because there are no known ways of keeping track of precisely how much American currency is presently being used as the unofficial national currency of other countries.
As of the summer of 2016, the British Virgin Islands, the three Caribbean Netherland Islands of Bonaire, Saint Eustatius and Saba, East Timor, Ecuador, El Salvador, The Marshall Islands, The Federated States Of Micronesia, Palau, Panama and The Turks And Caicos Islands all use the American Dollar almost exclusively as their only currencies.
In The Bahamas, Barbados, Belize, Bermuda, Cambodia, Costa Rica, Haiti, Iraq, Lebanon, Liberia, North Korea, Somalia, Uruguay and Zimbabwe, people use the U.S. Dollar as well as other various currencies, including their own currencies in some instances as their currencies. Until 2004, the U.S. dollar was commonly unofficially used throughout Cuba until the Cuban government banned the use of American currency.
When we spend American dollars as cash in the U.S., in our colonies (Puerto Rico, Guam, the US Virgin Islands, American Samoa, etc.) or on U.S. military bases overseas, the value of the bills and coins that we’re spending is directly determined by the Federal Reserve Bank Of The United States Of America.
Since December of 1913, the Federal Reserve Bank Of The United States Of America has been hiring some of the top economists in the entire world every year to closely monitor how much currency is being spent in the U.S., so that they can adjust the federal funds rate- which is part of the reason that the dollar has been a relatively stable currency for the past century.
By contrast, in some of the instances in which other countries are unofficially using our currency because theirs have fail or have become unstable, they unofficially assign an exchange rate for American dollars against their own currencies or against any of the other currencies that they are using, and in some of the other countries which are using American dollars, the value of the American dollars that they are using is determined by absolutely nothing at all. In some of the countries that are using our currency, the value of American coins and bills is simply whatever someone feels like paying for any given items on any given day.
Some economists will assert that the use of our currency in other countries, or “dollarization” may serve to strengthen the value of our currency. Some people feel that the mere fact that so many other countries are using our currency contributes the peoples’ perception that the American dollar is a strong, stable and valuable currency. Ironically, whether this perception is accurate or not is not actually relevant at all; if people throughout the world perceive our currency as being strong, stable and valuable, then that alone will contribute to a lot of people feeling confident in investing in American businesses.
By contrast, a number of others economists state precisely the opposite view. A number of highly credible economists will assert that having so much of our currency in circulation can weaken the value of the U.S. dollar.
The reason that other countries are using our currency as theirs is that their own currencies became so unstable- and this is usually because their economies or their governments are unstable (or both.) Because the value of the American Dollars and coins that are being spent in various countries in the Caribbean, Central America, South America, the Pacific islands, Africa, etc. fluctuates so much from one day to the next, some economists feel that this actually drains the relative value of our currency in relation to other currencies.
In the cases in which American currency is being spent in the most unstable of the countries which use our dollars and our coins, some of those governments actually are at risk of being overthrown in revolutions in the developing world. When that happens, some of the currency often falls into the hands of foreign criminal gangs, rogue militias or terrorists, and then it simply disappears- nobody anywhere actually has any way of knowing what happens to the bills and coins next, because it is absolutely impossible to monitor how criminal gangs, rogue militias or terrorists opt to spend whatever funds they manage to acquire.
The side effects of having so much of our currency in circulation in foreign countries
One of the side effects of having so much of our currency in circulation in foreign countries is that our mints as well as our Bureau Of Engraving And Printing do need to hire additional employees, simply because so much of the money that we’re printing with the intent that it will be used domestically is ending up overseas.
An even larger issue is why are we using our tax revenue to pay for our mints and our Bureau Of Engraving And Printing to print bills and to mint coins for use in so many other countries? Why are we paying for the base metals that are used to mints coins, the paper and ink for bills, the machines which print and mint them, the detailed research and analysis of the newest anti-counterfeiting measures (such as watermarks, holograms, etc.) for at least 25 other countries, while we’re receiving at total of $0.00 in return?
In 2015, the Bureau Of Engraving And Printing and the U.S. Mint printed approximately 7.2 billion notes and coins, with a value of 188.7 billion Dollars in U.S. currency, and this year the projected total will be approximately 7.6 billion notes, worth a total value of 213.3 billion Dollars.
According to the U.S. Federal Reserve Bank’s website, there is now approximately 1.4 trillion dollars in American currency in circulation. Approximately one third of that 1.4 trillion dollars is presently in circulation within the United States Of America, and the remaining two thirds of it is in circulation overseas.
There are a number of different methods which so much of our currency ends up in circulation overseas. Some of it is issued directly to various banks and purchased by travel agencies and currency exchanges throughout the world specifically so that when people who live in those countries are traveling to the U.S. as tourists or for business trips, they can exchange their currencies for U.S.$ before they travel. Some of our currency ends up overseas when people who travel to the U.S. bring it back with them. The foreign exchange market is also responsible for some of our currency ending up in other countries. It is not known (and probably not knowable anymore) precisely which percentage of our currency which is in circulation in other countries comes from each of these sources.
What The World Bank is Doing?
The World Bank, the International Development Association and the International Bank For Reconstruction And Development are very capable of working with the governments of every country in the world in which foreign currencies have replaced domestic currencies to either establish a stable national currency in each country, or in the cases in which governments prefer to sign party to regional currencies, the agencies or the World Bank can work with these governments to assist them with signing party to regional currencies such as the West African CFA Franc (“WCFA” / “XOF”), the Central African CFA Franc (“CFA” / “XAF”) or the East Caribbean Dollar (“$XCD.”)
It would probably not be practicable for the UN to propose legislation which would require that each country either establish their own national currency or sign party to a regional currency and require that those are the only currencies which can be legally used because once a currency become unstable, people will simply opt to start to use foreign currencies which are more stable.
However, it is in fact part of the responsibilities of the World Bank to see that countries are able to either establish their own stable national currencies or sign party to regional currencies. Our Federal government and our ambassadors and our representatives to the United Nations can opt to attempt to explain to the administrators at the World Bank, the International Development Association and the International Bank For Reconstruction And Development (all of which are headquartered in Washington, D.C.) that it is long overdue that the countries that I’ve mentioned either establish their own national currencies or sign party to regional currencies because very simply, we can’t afford to be printing bills and minting coins for them anymore.
It’s not our job, we can’t afford to provide currency for so many other countries anymore, and using our currency doesn’t actually stabilize the economies of the other countries who governments refuse to even try to establish their own national currencies or sign party to regional ones.
While the effects of the use of our currency in so many other countries is difficult to analyze, the effects of the countries which use our currency switching to their own national currencies or to regional currencies will be easier to predict. If the countries which are unofficially using our dollars switch to using their own national currencies or to regional currencies, then the American dollars will eventually end up being sent back to us. This will likely not devalue the value of our currency at all because once dollars are back in the U.S., they are now linked to our Federal Reserve Bank, and our Federal Reserve Bank needs to do nothing more than keep them in storage until they are needed or recycle them when there is a surplus- which is what our Federal Reserve Bank has already been doing since it was founded in 1913.