The value of the U.S. dollar has been falling steadily recently, which is causing concern to investors on Wall Street, and to the Obama administration. As an American citizen or resident, the falling value of the U.S. dollar should be of concern to you too.
The value of the U.S. dollar just hit a 14 month low today, currently trading below a key level of $75 at $74.97. The value of our currency, as opposed to other currencies around the world has been tracked since the 1970's.
The value of the dollar has been falling due to the huge deficit of the U.S. budget, and the continuing fear that the excessive printing of money will ultimately lead to run-away inflation.
The strength of the U.S. dollar is the reason why the dollar emerged as the world’s pre-eminent currency, one that any nation had to own if it hoped to trade with the rest of the world. The falling value has other countries now questioning whether or not the U.S. dollar should remain the "reserve" currency, or if a "basket of currencies" should replace the dollar as the reserve currency. This is an issue that has never been discussed before.
Currencies were first rated against each other, with floating values, when President Nixon eliminated the "gold standard" on August 15, 1971.
Initially it seemed that the Obama administration supported the declining value of the dollar. It was enabling the U.S to narrow the trade deficit because U.S. products became cheaper in other countries. U.S. businesses that sold products internationally benefit from the falling dollar because their products become less costly to import for other countries, while U.S. businesses are paid in higher valued currencies.
Oil, which almost every American needs, not just to fuel your car, but also to generate electricity, is traded worldwide in the U.S. dollar. The falling dollar is driving up the cost of oil and gasoline imports, which will hit all of us in our pockets.
When the majority of European countries exchanged all their individual currencies for the Euro, the Euro was intended to trade evenly with the U.S. dollar. Currently the Euro is valued at $1.50. The Canadian dollar used to be worth approximately $0.60 on the dollar, but as of this morning, it is trading almost even.
For U.S. travelers, this means our dollar will not go as far when we travel, in purchases, dining, or hotels. This is impacting the tourism industry around the world, so the rest of the world is equally as unhappy with our falling dollar as we should be.
The other side of the coin is that if our products are cheaper in other countries, their products are more expensive for us. Products that we all use everyday are made around the world, and the cost of those products is rising as our dollar falls.
Some conveniences we have grown to appreciate, like produce from Mexico during off season months, will become much more expensive.
Clothing from India, and other emerging nations, will become more comparably priced to clothing made on our shores. The list can go on and on, but long term, a stable dollar value is desirable for the public, outside of Wall Street.
China, has a number of reasons to be concerned as our dollar value plummets. They hold massive amounts of U.S. debt, which diminish in value. In addition, their products are becoming more expensive for us to import, and therefore, their products become more expensive for the consumer.
Obama is concerned because the government still has a need to raise cash through the sale of Treasury bonds. If the dollar continues to drop in value, that may prove to be a real challenge. Stabilizing the dollar is becoming huge news and a big priority.
The question is how to go about raising the value of the dollar against other currencies in this economy.
For more information you might like to read:
Oil blows through $80 point of resistance
Resources:
Why Dollar's Continued Slide May Undermine Global Status
Written by Shelby Bateson
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