A weaker dollar won't drive recovery
Euromoney, is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

A weaker dollar won't drive recovery

Last month's G7 finance ministers' meeting in Dubai prompted a sharp fall in the dollar. I reckon this is a turning point in the fortunes of the currency since its peak in February 2002.

To get the US economy going, the administration has already incurred huge deficits and started issuing limitless, costless dough. Now it has ditched the "strong dollar" policy.

The consensus view is that this is good news. A weaker dollar, this argument goes, will help reduce the huge US trade deficit, and Europe and Japan will be forced into economic reform to revive their economies. And a weaker dollar will help reflate global prices.

Deflation compounded I don't agree. A weaker dollar is another deflationary burden on the world, which is already weighed down by overcapacity and weak consumer demand outside the US and high consumer debt inside it.

The US plan won't work because the world is unbalanced and dollar devaluation will have uneven effects. The US sees cheap Asian exports as depriving US manufacturers of market share. That makes it hard for US industry to stage the sort of recovery that delivers jobs.

So the US has put the squeeze on Japan (and other Asian countries) to alter the policy of currency intervention to keep their exports booming.

Gift this article