The Role of the U.S. Dollar in Global Trade Finance: A Study of Its Dominance and Future Prospects

The Role of the U.S. Dollar in Global Trade Finance: A Study of Its Dominance and Future Prospects

Parani Prasanth T1, Abhayansh Gupta2, Pragadeeshwaran M3, Sheetal Shridhar4, Feba S5, Reeda6, Annagiri Swetha7, Raja Siva Pavishna G8,

(Co-Author) Dr. Raghavendra Rao9

Department of Finance & Management

CMS Business School, Jain Deemed-to-be University, Bangalore, Karnataka, India.

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Abstract:

This paper digs deep on what reason has led the U.S. dollar to be a dominant force for years mainly due to its stability, liquidity, and greater usage within international markets. It has made it the world's reserve currency did not just serve as an enabler for far-flung international trades and investments but also led to the establishment of the United States in terms of standing in economic and geopolitical standing. Historical factors concerning the dollar's increasing popularity over time are addressed in this paper-from the post-WWII establishment of the Bretton Woods system to the moments well after the death of the gold standard. It further explores shifting threats to the supremacy of the dollar and key drivers that might change the financial environment in the world. These are the economic ascension of emerging markets, particularly China, seeking to internationalize the yuan; extension of the BRICS bloc, composed of Brazil, Russia, India, China, and South Africa, and their joint thrust toward depolarization. Digital currencies and blockchain technology provide an emerging alternative that would allow countries to bypass traditional banking systems or lessen their dependency on the dollar when making cross-border transactions. The discussion explores how geopolitical stress - whether a trade war or the imposition of sanctions, as examples - may push the shift away from the dollar, based on a focus on increasing foreign reserves' diversity and insulation against the over-reach of the US. In addition, the paper went through how adjustments in global financial regulation, technological innovation, and central banks' policies may have an impact on the safe-haven status the dollar enjoys.

Through a combination of both quantitative and qualitative methods, this paper examines the continued relevance of the dollar at the international level in terms of trade and finance. Indeed, it envisions possible scenarios: the continued reign of the dollar, the emergence of rival currencies, and the new politics of global economic crises over currency dynamics. But if nothing else, it provides a more refined and multi-dimensional view of what is going on with the dollar today and what may go on in the future in an increasingly multipolar world economy. These insights will be critical when policymakers, financial institutions, and global businesses negotiate their way through uncertainty in changing currency landscapes.

Keywords:

U.S. dollar, global trade, finance reserve, currency economic, uncertainty emerging economies, digital currencies, geopolitical shifts currency competition.