Trying to Understand the Falling Dollar
I found this article from the Washington Post regarding the falling dollar. It is an interview with Brad W. Setser, Council on Foreign Relation’s fellow for geoeconomics and an expert on currencies.
It doesn’t address problems inherent in fiat currencies but it does give some insight into how fluctuating currencies impact trade.
Are countries in East Asia concerned that a falling dollar will hurt their exports?
Countries that peg to the dollar are seeing the value of their currencies fall against the euro and are seeing a rapid increase in their exports to Europe. So for many countries, the concern isn’t that a fall in the dollar will lead to a fall in their exports. It’s that economic weakness in the U.S. will spread to Europe, and that the broader reduction in global growth will lead to a reduction in their export growth.
Now there are specific concerns in countries like India and Thailand that have let their currencies appreciate against the dollar and the renminbi–they are a little worried that China will undercut them in global markets. As a result, they’ve been resisting further appreciation in their currencies. But I would put a great deal more emphasis on concerns that U.S. weakness may be the leading edge of a broader global slowdown. Specific Asian economies, particularly those like China that are doing very well and are pegged to the dollar, worry that there’s a growing difference between the domestic needs of their own economies–their own economic conditions likely call for probably higher interest rates and a stronger currency–and the economic and monetary policy that they’re importing by virtue of their peg to the U.S. dollar.
There are also some interesting comments about China’s accumulation of dollars and what they might do with their huge reserves.
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