More than 61% of all foreign bank reserves in 2019 are held in US dollars. Dollar is the thing which made the economy of the US so strong. But how did this happen? How did the US dollar become the global reserve currency?

After World War II, 44 allied countries came to an agreement and created the Bretton Woods agreement in New Hampshire for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference. The goal was to fix the exchange rate of all foreign currencies to the U.S. dollar, where the U.S. will redeem any dollar for the value of gold. At the time, the United States was the only country largely unscathed by the war while the economies of other European countries were severely damaged. Since the United States held most of the world's gold supply and the gold-backed dollar was relatively stable, it was agreed that the US dollar would be the official reserve currency. Thus, allowing other countries to back their currencies with dollars instead of gold.

This agreement allowed other countries to replace their currencies with dollars instead of gold. This marked the beginning of the US dollar's journey to becoming the world's major convertible currency and the world's reserve currency.

However, with the United States running huge deficits in the 1960s and depleting its gold reserves, the government found the commitment too costly to keep.

And so, in 1971, President Nixon separated the relation between the dollar and gold.

The value of the dollar is now determined by a mix of political and economic forces, from central bank decisions to the frantic buying and selling of traders around the world.

The original system set up at Bretton Woods has long since ended, but the dollar still remains the international reserve currency.