Dollar gap is an economic term denoting a situation where the stock of

US dollars The United States dollar (Currency symbol, symbol: Dollar sign, $; ISO 4217, code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from Dollar, other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American ...

is insufficient to satisfy the demand of foreign customers. The usage of the word "gap"" specifically refers to the positive difference between

exports An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an ...

and

imports An import is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade. In international trade, the importation and exportation of goods are limited ...

, i.e. US active

trade balance The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...

of the U.S. after World War II, which led to the difference between the need for dollars and their limited supply.

History

The lack of dollars suffered mainly by European states after

World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...

, specifically from 1944-1960. The result was the risk of a slowdown in

foreign trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy) In most countries, such trade represents a significant s ...

, which depended on the convertibility of European currencies into US dollars. The

Bretton Woods Bretton Woods can refer to: *Bretton Woods, New Hampshire, a village in the United States **Bretton Woods Mountain Resort, a ski resort located in Bretton Woods, New Hampshire *The 1944 Bretton Woods Conference, also known as the "United Nations Mo ...

monetary system A monetary system is a system by which a government provides money in a country's economy. Modern monetary systems usually consist of the national treasury, the mint, the central banks and commercial banks. Commodity money system A commodity m ...

was a key dollar service used in international transactions. Between 1946 and 1951, the United States accumulated

trade surplus The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...

es. This created a shortage of dollars, as Europe needed to finance its imports from the United States without being able to balance its balance with its exports. This shortcoming was addressed by creating dollars and paying them to other states, which was also one of the goals of the

Marshall Plan The Marshall Plan (officially the European Recovery Program, ERP) was an American initiative enacted in 1948 to provide foreign aid to Western Europe. The United States transferred over $13 billion (equivalent of about $ in ) in economic re ...

. Furthermore, clearinghouses (

European Payments Union The European Payments Union (EPU) was an organization in existence from July 1950 to December 1958, when it was replaced by the European Monetary Agreement. With the end of World War II, economic depression struck Europe. Of all the non-neutral ...

) were created to smooth payment processing. In the long run, the dollar gap was solved by US

balance of payments In international economics, the balance of payments (also known as balance of international payments and abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., a ...

deficits, a period of so-called dollar glut.

References

{{Reflist International trade theory International trade International macroeconomics