The depreciation in the value of the Dollar has given rise to the trade deficit all across the globe; this is because the Dollar is the most widely used currency in exchange. When compared with the Euro, the value of the dollar is similar to its value in the mid 190s. The Economists believe that the value of a dollar when compared with a Euro is highly volatile and it is expected to rise as well as fall at the same time, this goes to show the volatility of the value of the dollar. This paper will throw light upon the value of a dollar, a comprehensive analysis of the value of a dollar will be provided and comparisons with other major currencies will also be made in this paper.
The dollar greatly depreciated in the year 1971, this was because of the undermining of the Bretton Woods System introduced by Richard Nixon. The same resulted in the collapse of the fixed rate system in early 1973. Another international rescue operation had to be launched because of the increasing inflation and the uncertain policies of FED. The inflation touched new peaks in 1970s and the value of the dollar fell sharply in the exchange market. In the early 1980s Paul Volcker took over as the new chairman of FED and imposed high interest rates as a result of which the value of the Dollar shot up by more than 50% because of the high foreign capital inflows.
To deal with this situation, the representatives of leading industrial countries got together in New York to discuss the problem and come up with solutions. “In Europe, the sharp appreciations slowed economic growth causing what was then called “eurosclerosis.” The Japanese yen had appreciated the most, with additional American pressure creating the expectation of further appreciations. This thoroughly destabilized Japan’s financial system with gigantic stock and land markets bubbles in the late 1980s that crashed in 1991 — and severe deflation from the overvalued yen throughout its “lost decade” of the 1990s. (The Worth of the Dollar).
Economic Principle
Many people have this false belief that if the US depreciates its value of the exchange rate then there will be no inflation caused at home neither will it cause any deflation oversees, this whole process is believed by many to improve the trade balance of the country.
Opinion
The exports will become less expensive which would mean that more and more people will buy the goods produced in the US and the export in the country will give good gains and the imports will be bought less by the Americans. This paper threw light upon two different aspects of Macroeconomics and a comprehensive understanding of both the concepts has been provided in this paper.
References
British Credit Crunch. In Wealth Daily. 2009. Web.
British Economy not looking good. In Global Politician. 2009. Web.
The Impact of Credit Crunch. In World Socialist. 2009. Web.
The Worth of the Dollar. In The Wall Street Journal. 2009. Web.