Amid the mixed signals the national economy is sending — gross domestic product is up, but so is unemployment — the value of the U.S. dollar relative to other currencies is a piece of the puzzle that must be considered. A rising dollar blesses some, while a sinking dollar benefits others. As much as is possible, the federal government must try to influence the dollar’s value to coincide with its goals of bolstering the middle class.
In recent months, the Obama administration and the Federal Reserve appear to have allowed — if not encouraged — the devaluing of the greenback. The dollar is down 18 percent against the euro in the past 12 months. The tumble has come from U.S. policy that waters down its value by printing more money and lowering interest rates.
The policy is designed to boost economic growth, and it works. Everything from American-made cell phones to furniture is less expensive in export markets, as the buying power of the currency in those countries towers over the weak dollar. That means productivity increases here at home. It also encourages foreign manufacturers to create jobs in the U.S.
The U.S. trade deficit has declined as a result, a rare occurrence.
Abroad, the weak dollar has irritated the Japanese and Europeans, because products made there — cars and appliances — are now more expensive to American consumers than those made domestically. French President Nicolas Sarkozy called the sinking dollar “a disaster” for the European economy, The Washington Post reported.
While some economists agree that the devalued dollar is helping the U.S. economy in its time of need, keeping it weak is a dangerous game. If countries such as China and Japan, which hold many U.S. dollars because of their relative safety, suddenly divest of the currency, the value could plummet precipitously, creating another set of worries. And since the dollar is the currency of choice in oil trading, its affects gas prices.
The current recession began, statistically speaking, in December 2007. In an opinion piece published in The New York Times on Dec. 2, 2007, economist Tyler Cowen argued that the falling dollar, “often seen as a sign of an impending recession or the fall of the United States from global leadership,” was no cause for worry. “In the case of the dollar,” he wrote, “we need to stop thinking of its value as a marker of economic success. The American economy has its problems, but so far the low value of the dollar has proved more a benefit than cost.”
Currency policy is an important lever in President Barack Obama’s efforts to build a sustainable and healthy economy.