U.S. Currency and the World’s Problem

The dollar's value continues to decrease. Since last March, the dollar has lost, on average, 15 percent of its value compared to other major currencies. This automatically means that the dinar, which is tied to the dollar, has also fallen in value. Thus, it is anticipated that a new wave of inflation will appear in the local market despite the economic slowdown.

Two questions that worry economic observers are "when will the dollar stop decreasing?" and "when will the European central bank set interest rates to achieve a kind of balance that will support European exports to the U.S.?". Furthermore, all eyes are directed to China to pinpoint its reaction.

Therefore, we can talk about two kinds of reactions. Firstly, in Europe, the powerful countries, notably Germany, were not affected until now by the dollar's fall in value. Its exports persist and the euro's value is not declining. However, less powerful countries that have recently joined the European Union have repeatedly declared that it’s time to reduce interest rates on the euro. It’s highly likely that this would take 3 to 6 months to achieve, if it occurred at all.

Secondly, China has assets in excess of a trillion of dollars. Thus, the dollar's weakness means a huge loss for China. Moreover, the currency slump shrinks China's relative export capacity in the American market. Nevertheless, the dollar's weakness will stimulate the American market and will lead to a recovery of demand to its previous levels, or an escape from the recession. It’s considered that China therefore does not currently want to see an increase in the dollar's value.

For China and Europe, the weak dollar during this period signifies the beginning of the end of the economic crisis. This situation is better than in periods when the dollar is strong during an American recession. In other words, we must live peacefully with the slumping dollar for a long time.

It follows from this that the demand for material assets and bonds has increased beyond that for the slumping currency to an unknown degree. Therefore, we’re noticing signs of recovery in global markets. The prices of assets and houses have also started to increase in the U.S. and some European markets. This change is normal. The currency devaluation, accompanied by the decrease in interest rates, disrupts the “secure recourse” of the greenback.

Domestically, we are not removed from this change, which will stay with us for the near future. However, instead of affecting asset investment, here the problems will concern bank deposits and currency conversion from dollars to dinars. But this fact is not enough to undo currency losses or to activate our economic sectors. Contrary to developments in the world's other market, the bonds market is suffering from an unjustified regression and recession. The right choice is to focus on such investments given the decline in available investment opportunities. It’s obvious that many local changes are related to currency prices, which are considered an “anchor” for economic decisions concerning the distribution of investment portfolios. Furthermore, we notice that other countries are affected by what’s happening with the dollar and respond to it. As an American president said decades ago, “the dollar is our currency and your problem.” He was speaking to Europeans. The issue is more serious than this. The dollar is causing problems for the world and for all economic policies that depend on the dollar, and we, locally, are directly affected. This makes us return again to consideration of growth and inflation!