February 21, 2008

Making Sense out of the Dollar

Featuring: Dr. Anne Krueger - Professor of International Economics, Johns Hopkins School of Advanced International Studies Former Chief Economist, World Bank Former Director and Deputy Managing Director, International Monetary Fund

The US dollar is the weakest it has been in more than a decade. In 2007 the dollar fell 9.5 percent against the Euro after losing 10.2 percent in 2006. It is currently weaker than 14 of the top 16 most actively traded currencies in the world than it was on January 1, 2007. What does this mean for Americans, who is affected, and is it a bad thing?

Anything in America called weak is considered to be a bad thing. However, a weak dollar might not be all bad; it has both winners and losers. If one is worried about the growing trade imbalance, a weak dollar means that US exports will rise and imports will decline, thereby decreasing the trade deficit. Worries over outsourcing, should be soothed when the dollar is weak. In fact, companies such as Airbus and BMW are looking to expand their manufacturing facilities in the US in the light of the weakening dollar. The tourist industry in the US should see a boost in international travelers. However, if one is trying to import luxury goods from abroad, traveling internationally, or filling up their gas tank the weak dollar means all will cost more than they did a few years ago. Also, countries that rely on US investment to fuel much of their growth (e.g. India and China) have something to worry about over the coming months as US investments abroad will slow.

The dollar has been weaker in the past and it recovered from each of those bouts to reach new strengths, and this time around should be no different. Over time the dollar will regain its strength and this too will come with both positives and negatives.