The US dollar has taken a pounding against many international currencies lately, including the Canadian dollar, the British pound and the euro. Over the last two years, the US dollar has dropped about 30 percent against the euro, 19 percent against the yen and 23 percent against a group of 26 other currencies. While Europe may not yet be able to match the United States' military power, it is proving a competitive economic power.
Despite the decline of the dollar, much of the news in the US economy seems to be very positive and economic experts are predicting a boom similar to that of the 1990s. Stock markets have responded positively so far this year, with the Dow Jones continuing to rise and the Nasdaq reaching a two-year high this week. Unemployment and interest rates continue to remain low, while business spending is expected to increase. However, the value of the dollar is still expected to drop in comparison to other international currencies and this has some experts worried. If the dollar devalues too far, long-term interest rates could increase and lead to a stall in the recovering economy. As interest rates climb to attract new investors, the deficit could surge quickly past the 4 trillion debt already held by the US public.
Although global investors aren't withdrawing funds from the United States, they're wary of new commitments. Many now seem to be turning to gold and other precious metals as security blankets during this declining greenback period. Gold has always been most popular during a declining dollar trend and this week sold at a 15-year high.
Some economic experts believe that ever since the US dollar was taken off the gold standard, the world has been heading toward a global currency. Gold served as a stabilizing agent in the country's economic well-being because backing dollars with gold kept inflation under control and kept trade balances between countries in check. However, in 1971 President Nixon announced that he would "suspend temporarily the convertibility of the dollar into gold or other reserve assets." As a result, the currencies of the world began to "float" against one another, with no ultimate standard for comparing currency values. This created conditions that allowed for bigger nations, banks and corporations to engage in currency speculation. No one can foresee what any given currency will be worth in terms of any other a year from now, or even tomorrow. Therefore anyone engaged in import or export trade, or in any international business, is forced, to some extent, to become a gambler.
Some economists would like to see an end to all the currency speculation, but the only way they see this happening is if the US dollar is brought to parity with the euro and the yen. They consider that if the euro can replace the franc, mark and lira, then a new world currency should be able to merge the dollar, euro and yen.
The man often credited with paving the way for the euro, Robert Mundell, this week called for such a global currency. In an interview with the French paper Libration, Mundell said, "Of course, one would keep the dollar and the euro. This international currency would be used in the large international exchanges, for movements of capital and commercial transactions."
The idea of a single world currency is not new. A global currency was proposed at the 1944 Bretton Woods conference that produced the International Monetary Fund (IMF) and other international institutions.
Related Links:
• 'Father Of the Euro' Calls For Global Currency - The EU Observer