Unit 4 Macro: Exchange Rate Economics - Where next for the US Dollar?
Recommend on Google+
Is the US dollar going to be knocked off its perch as the only true global currency? Professor Barry Eichengreen, the author of Exhorbitant Privelege argues that there are strong reasons to believe that the US dollars’ position in the world financial system will decline in the years ahead.
The US dollar has been for many years the world’s most powerful currencies but this power seems to be waning as other currencies rise in significance and the US economy struggles to recover from their financial and economic crisis and the fiscal challenge. Eichengreen argues that there will be three truly global currencies going forward - the dollar, the Euro and the remnimbi.
Influences on the external value of the US dollar
1. Multi-polar world economy - there are different centres of growth now and the size and impact of the economies of emerging market fast-growth countries is changing the landscape of the currency markets
2. Trade: The US Dollar is accounting for less of the annual value of world trade year by year and a smaller percentage of foreign currency reserves held by central banks
3. Convertibility and transparency: It is now much easier to exchange currencies and convert into others - several monies can compete on the global stage and immediate real time information gives traders instant data on macroeconomic performance. Just last week there was news of an agreement between China and Japan to facilitate full currency convertibility between the two countries (read: China and Japan plan direct currency exchange agreement) See also: China to make more yuan currency available for trade
4. Slower growth for the USA: There are deepening worries about future trend growth in the US economy causing a structural decline in the size of the US economy in the global economic system. High unemployment rates and the prospect of years of fiscal austerity are two key factors behind slow GDP growth forecasts
5. BoP: The USA continues to run a persistent current account deficit – will it always be able to finance this through capital account surpluses?
6. Politics: Political gridlock in the USA (a dysfunctional political system) will constrain macro policy options and undermine financial market confidence in the US economy in setting the stage for a durable recovery
A depreciation of the US dollar would clearly help to improve US export competitiveness and perhaps provide a boost to their economic growth rate in the short term. But international holders of US dollars might get very nervous of the risk of capital loss if depreciation became a rout.
blog comments powered by Disqus
Unit 3 Micro: Game Theory and Business Economics [21 May 2012]
Revision notes on unemployment [20 May 2012]
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012 [16 May 2012]
Grexit - Andrew Balls on Greece and the Euro [16 May 2012]
Unit 1 Micro: Asymmetric Information [12 May 2012]
Unit 1 Micro: De-Merit Goods [12 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Unit 2 Macro: 10 Key Revision Topics for EdExcel [7 May 2012]
Unit 4 Macro: TV Assembly Back in the USA [5 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Macro Revision - Key Statistics on the UK Economy [4 May 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
Unit 2 Macro: Globalisation and the Growth of Ports [10 Apr 2012]
Unit 2 Macro: Revision on Interest Rates and the Exchange Rate [3 Apr 2012]
Unit 1 Micro: The Collapsing Price of Carbon [3 Apr 2012]
Unit 4 Macro: Floating and Managed Floating Exchange Rates [2 Apr 2012]
Unit 4 Macro: Pain in Spain as Fiscal Austerity Bites [1 Apr 2012]
Posen on slower growth in the UK compared to the USA [30 Mar 2012]
Unit 2 Macro: Revision on Capital Investment [30 Mar 2012]
Unit 3 Micro: EU Imposes Further Price Cap on Mobile Phone Companies [29 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
Beyond the Bike - Monetary Policy in Africa [28 Mar 2012]
Solar Panels and Tariffs [21 Mar 2012]
Unit 1 Micro: Government launches New Buy Loan Guarantee Scheme [12 Mar 2012]
Unit 4 Macro: Video Resources on the Euro Crisis [10 Mar 2012]
Evidence of the dangers of protectionism [9 Mar 2012]
Unit 4 Macro: Enlarging the EU [9 Mar 2012]
Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
Unit 2 Macro: News Videos on the German Economy [9 Mar 2012]
Unit 2 Macro: Might Oil Prices Bring another Recession? [4 Mar 2012]
Mortgage interest rates, LIBOR and game theory [3 Mar 2012]
The Economics of Climate Change - Stern 5 Years On [21 Feb 2012]
Pinterest: Board on Developments in the EU Economy [19 Feb 2012]
Unit 1 Economics: Panorama - Poor America [17 Feb 2012]
A return to Glass-Steagall to prevent another crash? A lesson from economic history. [17 Feb 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Unit 2 Macro: China’s Trade Engine is Spluttering [10 Feb 2012]
Martin Wolf on Global Shocks [10 Feb 2012]
Trucks are the new way of measuring debt [1 Feb 2012]
Unit 1 Micro: Can the UK Computer Games Industry Grow [24 Jan 2012]
Unit 4 Macro: Russia Joins the WTO [22 Jan 2012]
Unit1 Micro: Processed Meat and Cancer Risk - Information Failure? [17 Jan 2012]
Unit 4 Macro: France loses her AAA credit rating [15 Jan 2012]
Unit 2 Macro: Frontier Markets - the New BRICS? [15 Jan 2012]
Unit 4 Macro: UK Bond Yields Reach Record Lows [11 Jan 2012]
Unit 2 Macro: A Jobs Boost for the US Economy [8 Jan 2012]
Unit 4 Macro: Natural Disasters and their Economic Impact [7 Jan 2012]
Unit 1 Micro: Low Cost Airlines Beat the Recession [1 Jan 2012]
European Economics: Resources on the CAP [28 Dec 2011]
2011 in Review - The US Economy [27 Dec 2011]
Unit 2 Macro: The UK Housing Market in 2011 [26 Dec 2011]
The Eurozone Crisis Explained (again!) [22 Dec 2011]
Economics of Deforestation [20 Dec 2011]
Unit 4 Macro: Celebrating (?) Ten Years of Euro Notes and Coins [2 Dec 2011]
Beyond the Bike - What is the value of life in Africa? [19 Nov 2011]
Beyond the Bike - The Value of Money [19 Nov 2011]
LSE Lecture: Daniel Kahneman - Thinking Fast and Slow [15 Nov 2011]
Unit 2 Macro: Should the EU introduce a Tobin Tax? [14 Nov 2011]
Unit 1 Micro: Asymmetric Information - Buying a Used Car [14 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Eurozone crisis - a selection of resources [12 Nov 2011]
Unit 4 Macro: America’s hour-glass economy [9 Nov 2011]
US Budget Visualised [7 Nov 2011]
Unit 4 Macro: Should TNCs make full disclosure on factory wages? [30 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
The Return of Protectionism? [12 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
Unit 3 Micro: Tube Drivers set to earn £50,000 a year [3 Oct 2011]
Unit 1 Micro: Drink Driving and Government Intervention [26 Sep 2011]
Greek debt decision tree [25 Sep 2011]
Unit 4 Macro: Greek Economy at Default’s Door [25 Sep 2011]
Unit 2 Macro: Greece on the Brink of Default [25 Sep 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
UK Macro: Risks of a Double Dip Recession [12 Sep 2011]
Mixing with the Nobel Economists [4 Sep 2011]
hiphopnomics [31 Jul 2011]
Apple is richer than the US Government! [30 Jul 2011]
Monetary Policy Roundtable [25 Jul 2011]
Where there’s muck there’s brass [6 Jul 2011]
Global Economy: Increased risk of future shocks [28 Jun 2011]
AQA ECON4 Context [20 Jun 2011]
PIIGS on the chopping block? [24 May 2011]
AS Macro Key Term: Recession [23 May 2011]
AQA A2 Economics - European Context [23 May 2011]
A2 Micro: The Importance of Profit [19 May 2011]
A2 Micro: Business Growth [18 May 2011]
A2 Micro: Ownership and Control in Modern Businesses [18 May 2011]
Unit 3 Micro: Diseconomies of Scale [18 May 2011]
EU Economics: Comparing the UK with Europe [14 May 2011]
UK Economy Update: What Mervyn Said [11 May 2011]
Electric car charging points ‘shortfall’ [11 May 2011]
Review of “Adapt” by Tim Harford [9 May 2011]
AS Micro: Offering heart drugs by default [5 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
A2 Micro: Innovation in Markets [4 May 2011]
A2 Macro: Chinese investment in the EU [3 May 2011]
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 6,000 other Economics Teachers in the UK and around the world who receive the tutor2u regular Economics Resource Email Newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops + loads of great ideas for teaching economics from our blog authors.
