Dollar Problems Abroad

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.