The Demise of the Dollar?

The Independent featured an interesting article on the Demise of the Dollar.

There are more reasons for the dollar’s economic weakness here

The weak dollar is causing the price of gold to rise and the Euro to appreciate.

In some respects, the US won’t mind a weak dollar at the moment. This is because:

  • Weak dollar will help boost exports and limit imports. Overall domestic demand should be stronger
  • It will help reduce their long term trade deficit.
  • With inflation currently very low, they will not be worried about the inflationary impact of a depreciation.

The danger comes if the gradual depreciation becomes an a sharp fall because investors fear for the future of the US economy.

The Falling dollar is bad news for

  • The Eurozone. With Eurozone in recession or growing very slowly. The appreciation of Euro against dollar will harm EU exports and make a sustained recovery difficult.
  • Countries with Large Dollar Reserves. Since the US is the global reserve currency, most countries have exposure to the falling dollar and will see their dollar assets reduce in value. This may make it more difficult to attract foreign investors to buy US treasury bills to fund the US government deficit.

See also: Benefits and costs of a falling dollar

By on October 8th, 2009

Leave a Reply

Your email address will not be published. Required fields are marked *