Dollar Problems Abroad

June 9, 1978

Report Outline
World Monetary Disorders
Events Leading to Current Issues
Outlook for Economic Reform
Special Focus

World Monetary Disorders

Reasons Behind Dollar's Decline in Value

In economic terms, the 1970s are likely to be remembered as the period when the once “almighty” dollar fell on hard times. Its domestic purchasing power is half what it was in 1965; its value in gold is one-fifth what it was just six years ago. Since the end of World War II, non-Communist countries have pegged their economies to the dollar. But in the face of mounting U.S. trade deficits and spiraling inflation, the dollar's role as an international currency is being challenged as never before.

That topic is expected to be high on the agenda at the economic summit meeting next month in Bonn. Prior to the Bonn conference, leaders of the European Economic Community (EEC — “Common Market”) will gather in Bremen, West Germany, on July 6 to discuss the creation of a monetary union linking the principal European currencies to the Deutschmark — one of the world's two (along with the Japanese yen) strongest currencies today. The Bremen conference will be preceded by a meeting of EEC finance ministers in Luxembourg on June 19.

The dollar's immediate problems are related to this nation's sagging balance of trade. The U.S. State Department reported in April that America's trade deficit increased from $9 billion in 1976 to $31 billion in 1977. Imports rose by nearly $28 billion during that time, while exports increased less than $6 billion. Many economists foresee a similar deficit in 1978. They attribute these deficits to: (1) the high U.S. oil import bill — about $40 billion in 1977 — and (2) the reluctance of American businesses to seek foreign markets for their goods. Sales abroad are needed to support domestic employment, restrain trade protectionism and help bring this nation's income from abroad into balance with its foreign spending — on trade, investments, tourism, and military and foreign aid.

ISSUE TRACKER for Related Reports
U.S. Dollar and Inflation
Oct. 2008  The Troubled Dollar
Feb. 13, 1998  Deflation Fears
Mar. 13, 1987  Dollar Diplomacy
Oct. 14, 1983  Strong Dollar's Return
Jul. 11, 1980  Coping with Inflation
May 16, 1980  Measuring Inflation
Dec. 07, 1979  Federal Reserve's Inflation Fight
Jun. 09, 1978  Dollar Problems Abroad
Sep. 20, 1974  Inflation and Job Security
Feb. 26, 1969  Money Supply in Inflation
Feb. 14, 1968  Gold Policies and Production
Dec. 15, 1965  Anti-Inflation Policies in America and Britain
Mar. 15, 1965  World Monetary Reform
Dec. 02, 1964  Silver and the Coin Shortage
Oct. 17, 1962  Gold Stock and the Balance of Payments
Dec. 15, 1960  Gold and the Dollar
Oct. 10, 1956  Old-Age Annuities in Time of Inflation
Jan. 17, 1951  Credit Control in Inflation
Aug. 10, 1949  Dollar Shortage
Oct. 04, 1943  Stabilization of Exchanges
Jan. 21, 1941  Safeguards Against Monetary Inflation
Mar. 25, 1940  United States Gold in International Relations
Dec. 14, 1937  Four Years of the Silver Program
Oct. 04, 1934  Inflation in Europe and the United States
Jan. 30, 1934  Dollar Depreciation and Devaluation
Sep. 05, 1933  Stabilization of the Dollar
May 29, 1933  Invalidation of the Gold Clause
Mar. 15, 1933  Inflation of the Currency
Oct. 25, 1924  Bank Rate and Credit Control Federal Reserve Policies and the Defaltion Issue
BROWSE RELATED TOPICS:
Economic Analyses, Forecasts, and Statistics
Inflation
International Finance