Strong Dollar's Return

Report Outline
Global Currency Misalignment
Exchange Rate Management
America's Dollar Policy
Special Focus

Global Currency Misalignment

Benefits and Drawbacks; Foreign Protests

As any recent traveler abroad can testify, the dollar is strong again. It buys about twice what it did only three years ago in France and Italy, for example. The dollar even buys more in West Germany and Japan, the industrial giants whose currencies once rivaled the dollar's purchasing power in international markets.

But when Americans come home, they find that the dollar's strength is a mixed blessing at best. True, it makes imports a bargain, and their lower prices help keep U.S. inflation at bay. But the strong dollar, once considered a sign of a healthy economy, has also set in motion a vicious cycle of negative effects. It not only runs up the U.S. import bill but makes American goods costlier overseas, thus pushing this country's foreign-trade deficit to record figures. And the reduced competitiveness of U.S. industries in this situation has caused many of them to close down or lay off workers.

While foreign industries have profited by this turn of events, the home governments complain bitterly of inflation fueled by high-priced dollars. Essential oil imports, especially, are priced in dollars and thus become more costly. Third World borrowers additionally face higher interest payments on their dollar loans and are forced to cut spending to avoid default. Consumption is drastically reduced, drying up important export markets for the United States and other Western industrial nations and retarding their recovery from a worldwide recession.