A weak dollar

Thèmes abordés

Weak dollar US monetary policy

Résumé du document

Advantages and weaknesses of a weak dollar for US trade.
Current situation of the monetary policy in USA.

Extraits

[...] But, the economists and the governments of the euro zone esteemed they have a little time to prepare themselves to the crisis, that's why they believe the need of boosting the economy is less important than in the USA. So, the ECB tried to keep their discount rate to limit the inflation, even if during this difficult period, the inflation rate was of 3,2. A. Current monetary policy in US The monetary policy of the United States is decided and managed by the Fed, the central bank of the United States created in 1913. The primary objectives are price stability, full employment and economic growth. [...]

[...] Another advantage of the weak dollar is the fact that it helps reduce the real value of the debt of the United States. The last good thing about the low value of the dollar is that capital flight is not only bad for the global financial equilibrium, since, according to some economists, it is the glut of capital in the United States who caused the crisis of indebtedness and in risk assessment. However, this continued decline poses a risk to the United States. [...]

[...] Fourth, lower amounts of dollars in central bank reserves to other assets or other safe investments such as gold, for example China has recently tripled its gold reserves. The share of dollar reserves in central banks decreased from 73% in 1998 to 59% in 2008. Paradoxically, the decline of the dollar is good for the U.S. economy. Indeed, this will allow them to boost their exports and thus reduce its trade deficit. We can add that an increase in the competitiveness of U.S. products is good for their employment rate but also helps make labor cheaper U.S. at an international level. [...]

[...] The Fed is one of the few central banks which adjust its rates and its policy regularly to best manage the economies' changes. U.S. monetary policy before the crisis was an expansionist policy, which means a policy that increases the money supply in the economy that influences interest rates by lowering them, forcing people into debt to consume and borrow money for projects with low profitability. After the crisis, the type of monetary policy has not radically changed as it would have been logical. [...]

[...] Ben Bernanke, chairman of the Fed responds by justifying this action as "the best way to continue to ensure strong economic fundamentals that support the dollar as the global recovery through policies that lead to the resumption of robust growth in an environment prices stability in the United States." Many governments of developed countries opposed this policy advice to implement structural changes rather than to "bring new problems in the world economy by injecting into an infinite amount of cash for disheartening results." We can nuance that, knowing these policies will be aimed at easing rising inflation and hence a loss of value of the dollar leading to a better position for U.S. exports, which displeases Germany, The largest exporter in Europe. These decisions also penalize developing countries such as China, South Korea, Brazil or Thailand for exports by increasing the value of their currency. B. A weak dollar The dollar, currently at 1.38 euros, since the inception of the euro has almost always been lower than this last. [...]