For those interested in visiting America or in buying American products, now
is a good time to take advantage of the exchange rates. The US dollar has fallen
to the lowest position it has held in years. The decline of the US dollar,
especially in recent weeks, is having an impact on economies around the world,
with both good and bad implications for the those economies as well as for the
United States.
While inflation causes some problems in the long run, many economists are
optimistic about the positive effects that a sliding dollar could have on the US
economy. Because a drop in the value of the dollar gives a boost to the
buying power of foreign currency, American products will cost less in foreign
markets and will therefore sell better. Many companies, from Wrigley to
Deere to Proctor & Gamble, have already benefited from higher foreign sales
due to the relative decline of the dollar over the past year. The
decline has also caused imports to cost more, encouraging Americans to
purchase less expensive domestic products. These things together promise
to create more jobs for American workers.
However, such inflation can cause some problems in the long run.
Foreign investors are less likely to invest in US stocks because their value
might go down over time. As bond prices fall, interest rates will be
pushed up so that investors can make up for the loss in earnings. Also, as
import prices increase, American companies may take advantage of the fading
competition to also push up prices on domestic products.
As the dollar falls, the euro and yen are rising. The rise in the value of
the euro is giving the new currency prestige, and central banks in several
countries are exchanging their dollars for euros. This prestige has also
enabled Europe's bond market to grow, allowing companies and governments to
borrow money at lower interest rates. By making exports more expensive in
the currencies of other countries, however, the strengthening euro is
threatening to stagnate Europe's already struggling economy. Japan is also
concerned about the rising value of the yen as it fights deflation.
Japanese authorities are determined to keep the US dollar steady and to prevent
any further rise of the yen.
While the official position of the White House is to maintain a strong
dollar, many analysts suspect that the administration does not mind what the
slipping dollar can do for the US economy short term. "As long as U.S. shares
and bonds are doing well, they are not worried about the dollar's slide," said
Nakajima of Itochu Corp. However, it is important long term that the
dollar remain healthy. "The Unites States cannot afford to accept a weaker
dollar if Wall Street shares tumble," said Fukaya of Bank of
Tokyo-Mitsubishi.
