Siege of the Greenback
I am one of 300-plus million consumers in the United States. I consume, therefore I spend, and I spend in dollars. How much and how frequently I spend determine in large measure the health of the U.S. economy. Consumer spending fuels a whopping 70 percent of this country’s economy. I and my fellow U.S. consumers together are expected to shell out nearly $10 trillion this year.
How far my dollar stretches — how weak or strong its value — has much to do with policies and behavior at home and abroad. That’s why I paid close attention to an Oct. 6 report in a British newspaper, The Independent, about Arab states, Russia, China, Japan, France and Brazil planning to dump the dollar by 2018 as the currency of record for oil trading. They would use instead “a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar,” the article said. The report raced around the world like a wayward California brush fire. Currency traders sold the greenback and bought gold, sending the already weakened dollar plummeting and pushing the price of gold above $1,000 an ounce.
Grumbling about the dominance of the dollar in global commerce, particularly by China and Russia, is intensifying. Indeed, press reports of a shift away from the dollar precede the siege described in The Independent. The government of Saddam Hussein, for example, allegedly had decided to switch to the euro for its oil trade; Kuwait has opted to move to a basket of currencies; the United Arab Emirates has indicated plans to move at least one-tenth of its dollar reserves into euros; Venezuela is depositing a growing share of its oil profits in euros and engaging in non-dollar barter deals for oil; and in March, China called again for the dollar to be replaced by a new global reserve currency run by the International Monetary Fund. On Oct. 12, Bloomberg reported that central banks overseas increasingly are snubbing dollars in favor of euros and yen. From March to September this year, the dollar’s value fell 14.9 percent against the euro.
The world beyond our borders is flexing its muscle and the dollar is feeling it.
At home, we seem to need a low dollar to boost exports and economic growth, but not so low that it drives away foreigners who finance our government expenditures by buying our Treasury bills, notes and bonds. A weak dollar makes made-in-America goods cheaper and more competitive for foreign buyers with stronger currencies, so U.S. manufacturers stand to earn more from export sales. It also makes it cheaper for foreign tourists to visit the United States and for foreign investors to buy shares of American companies, plumping up U.S. capital markets.
But for me, a weak dollar means higher energy prices; higher prices for imported consumables; and higher costs for U.S.-made goods if manufacturers get greedy in the face of diminished foreign competition and jack up prices. This higher cost of living, or inflation, can lead to higher interest rates, which would strengthen the dollar, but would increase costs on mortgages, car notes, credit cards — you get the picture.
And some of us truly believe we can live well, the rest of the world be damned.