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Declining Dollar Value and the Global Economy



In our global economy, when something happens to an economic superpower, it affects the entire world. One of the largest hits to the global economy has been the declining value of the US dollar. As the United States government seemingly “prints out money” at a feverish pace, it begins to affect investors through the devaluation of its currency. When a nation’s currency is devalued, other countries gain a significant advantage when it comes to imports and exports against the devalued nation.

One of the first issues that countries in the United States are experiencing is with their exports. When trading from the United States to another country, US companies are finding that their goods are receiving less in exchange for their normal prices. Should a company accept less revenues? Less revenues mean lower profit, which affects the company’s bottom line. This eventually leads to difficult decisions by the company’s board of directors and in today’s economic climate leading to mass layoffs of employees.

One of the countries that has enjoyed the declining dollar value has been China. Deemed as a controversial move in the United States, the Chinese have pegged the Yuan against the value of the United States dollar. As the dollar has declined in value, China has been the most pleased with this – due to the trade imbalance between the two countries. The downside for China is the large amount of debt that it owns in the United States in US Treasury Bonds. As the value of the dollar declines, the notes that China holds also declines.

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Many countries are concerned with the falling value of the United States dollar, however not all economists believe that this poses a risk to many nations. According to a former deputy managing director of the IMF (International Monetary Fund), Anne Krueger, she believes that the larger problem facing the United States is its savings rate and aging population. Another factor noted by other economists has been the resilience of other economies in light of the economic problems faced by the United States. As the world’s number one economy, the United States has a figurative target on its back, with China hot on its heels.

One of the effects that the world will continue to examine is whether or not American goods and assets are still attractive due to the decline in value of the United States dollar. As American companies try to sell their goods on the world market, they may try to raise prices to keep profits in line with expectations – but will other countries accept such increases? With other countries being able to match the United States’ technological capabilities and natural resources, it has put the United States on the defense. Countries like China have the capability to manufacture an equal product at a lower cost – putting them at a huge advantage over the United States which has more stringent environmental laws, employee unions with strong demands, mandated minimum wages and a declining currency.

The problem looms worse for the United States than for the entire world. The world economy is resilient and not wholly dependent on the United States anymore. If the United States dollar is no longer the standard, we can very easily be discussing the Yuan or Euro as the world’s standard in a few years time.



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