Devaluation of Dollar Continues to Threaten U.S.’s Global Standing

The United States’ preeminent place on the global stage has undergone significant changes in the last 50 years. A report by Business Insider in 2014 showed China has now overtaken the U.S. in terms of Gross Domestic Product when adjusted for purchasing power.

Several factors have contributed to the decline of the U.S. dollar, which has been on a steady trend for some time now. Online Accounting Schools explains the strength of the currency as it relates to three aspects: globalization, inflation, and credit rating.

Globalization:

Switzerland’s economy has grown considerably since the early 1900s and now has an official GDP of $646.2 billion (U.S. dollars). Additionally, the Swiss franc is currently worth 5 percent more than the U.S. dollar.

Inflation:

Inflation occurs when the general price of goods rises over time. Since 1970, the U.S. dollar has been inflated by 602 percent. Today, the average home costs 520 percent more than it did in 1972.

Credit Rating:

Another major point to pay attention to is the United States’ credit rating in comparison to other countries. S&P, or Standard and Poor’s, is a rating service that evaluates how reliable an obligor is in regards to credit.

An AAA rating is the highest status. This rating translates to a guarantee that if a nation borrows money from one of its citizens — for example in the form of a bond — then that money will be paid back.

The United States possessed an AAA rating for 70 years straight from 1941 to 2011. However, S&P downgraded the U.S. to AA plus on August 5, 2011, just days after a debt ceiling showdown ended between Republicans and Democrats in Congress.

In 2011, the Pew Research Center Global Attitudes Project polled citizens of 22 nations to gauge whether these countries thought the United States could still claim to be the world’s leading power. The project found that people in 15 countries believed that China will replace or already has replaced the United States as the leading power. The root cause of all of this is the devaluation of the U.S. dollar.

Fall-of-the-Dollar

Source: Online Accounting Schools