Recently, the U.S. dollar has continued to depreciate. The U.S. dollar index reflecting the U.S dollar price ratio to other major international reserve currencies is at a fourteen month low. In the international foreign exchange market, on 21 October, the Euro to the U.S. dollar price ratio broke through 1:1.50, a psychological limit since August. According to one analysis, the primary reason for the weakening of the U.S. dollar is that investors worry whether the U.S. interest rate level will remain low for a long period of time, in turn affecting the international financial crisis. Once worries for the future of the world economy have been somewhat alleviated, the “hedging demand” in the U.S. dollar assets market will start to diminish.
The U.S. loan crisis initiated the international financial crisis and has already caused a “severe global winter.” Letting the dollar continue to devalue could potentially cause a new disaster in international finance and the world economy, causing the international community to become heavyhearted. The European Union Finance and Economics official has also been paying close attention to these issues. Eurogroup Chairman Juncker, at a recent meeting with Eurozone finance ministers, said that the Eurozone’s 16 countries have felt anxiety about a strong euro trend. French President Sarkozy’s special adviser, Henri Guaino, believes that continued depreciation of the U.S. dollar will be a disaster to European industry and economy. European Central Bank President Jean-Claude Trichet also pointed out that the fierce turbulence of the foreign exchange market will damage the economy. He stressed that the U.S. should strengthen the implementation of a “strong dollar” policy because “a strong U.S. dollar is very important to Europe, and to the overall world economy it is especially important.”
Although recently, American Treasury Secretary Geithner and White House Economic Adviser Summers both expressed their willingness to take the necessary measures to preserve the strength of the U.S. dollar, this actually has not been put into practical action by the U.S. In the situation that the U.S. economy has shown signs of improvement, the U.S. tacitly consents to depreciation, although it is doubtful that there are bad motives behind these actions. Depreciation is advantageous to an increase in U.S. exports and reduction in imports, thereby reducing the trade deficit. The U.S. government, by letting the dollar depreciate, causes huge debt along with the depreciation, which passes the crisis along to other countries. Furthermore, to some countries with emerging markets, this is no different from hostile control; not only have they made the national foreign exchange reserve shrink, but will also cause the cost of development to rise. Depreciation can create the universal rise of primary product prices, including that of petroleum, affecting and restricting the fast-paced and steady development of emerging market state economies. In addition, depreciation of the U.S. dollar could also induce a new round of trade protectionism and trade friction, bringing about negative effects on the collaboration of countries in dealing with the financial crisis to promote global economic recovery.
The depreciation of the U.S. dollar and exchange rate fluctuation were the direct causes of increased speculative monetary trading and disruption of the flow of capital. This was harmful to the stability of the international financial market. Western media generally believes that, while enjoying the privilege and advantage that this brings, as the owner of today’s most important international currency, the U.S. should not forget its responsibility to stabilize the international financial market.
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