The Dollar Continues to Weaken

U.S. currencyThe Obama administration has declared support for a strong dollar (that is, a currency that increases in value). Treasury Secretary William Geithner pointed out the nation’s “special responsibility” as “a source of stability and strength for the global economy.” In fact, the U.S. dollar has long served as the world’s “reserve currency,” and at present, no other currency seems poised to take its place. Asian nations whose economies are based largely on exports to the U.S. generally favor a “stable and strong dollar.” But it’s unclear what Washington can or will do to stabilize the downward slide of the nation’s currency.

Massive increases in federal government spending—for financial bailouts and domestic economic stimulus—is being financed by government borrowing. Consequently, the dollar has weakened (or steadily lost value), dropping to all-time lows against the Euro and other major currencies.

What is the downside of a weak dollar? First of all, it hurts the value of investments in U.S. government debt, including those held by foreign governments such as China. Attempts by the U.S. government to prop up the dollar’s value will likely involve the raising of interest rates, but this could hurt Americans with debts. A weak dollar makes travel abroad more expensive, but few Americans are impacted by this. And although a weak dollar makes U.S. exports relatively cheaper, and thus stimulates the export sector of the U.S. economy, it has the opposite effect on imports. And average Americans buy a large share of imported goods, and thus will pay more for them.

Related Links

  • Money in Motion: The Dollar
    This video explores the meaning of a “reserve currency” in the global financial system and examines the context of the declining value of the dollar owing to factors such as rising national debt of the United States—click on “The Dollar.” (Source: VOA News; accessed December 1, 2009)
  • Asian Nations Call on U.S. to Stabilize Declining Dollar
    This Wall Street Journal article reports on the reactions of other nations, particularly in Asia, to the declining value of the U.S. dollar in recent months. (Source: Wall Street Journal, November 13, 2009)
  • Does the Declining Dollar Affect You?
    This common-sense article analyzes the effects for ordinary Americans of the declining value of the dollar. (Source: Personal Money Store, November 20, 2009)
  • Dollar’s Weakness Inspires Modern-day Gold Rush
    This video from the NewsHour analyzes the weakness of the U.S. dollar and the rising price of gold. (Source: Public Broadcasting System, November 25, 2009)

One Comment

  1. cody says:

    Why would you try to weaken my money. You’ve made the biggest mistake of your life. NOBODY weakens my money, EVER!!!!!