Wednesday, November 24, 2004

US Risks A Downhill Dollar Disaster

This from the Guardian as the case of the declining dollar hots up.

by Larry Elliott
November 23, 2004
The Guardian

George Bush's foreign policy is simple: don't mess with America. The same, it appears, applies to economic policy as well. On Friday, the dollar fell sharply against the euro. That was unsurprising, since the downward lurch followed comments from Alan Greenspan which - by his own cryptic standards -
were unambiguous.

"It seems persuasive that, given the size of the US current account deficit, a diminished appetite for adding to dollar balances must occur at some point," Greenspan said. This was hardly a novel statement for the Federal Reserve chairman but the timing was interesting. It came on the eve of a meeting of the G20 - a conclave of developed and developing nations - in Berlin at which the recent fall in the dollar was a hot topic.

Moreover, it came three days after John Snow, US treasury secretary, poured cold water on the idea that the world's central banks might get together to arrest the dollar's fall. The history of "efforts to impose non-market valuations on currencies is at best unrewarding and chequered", he said in London.


Europe got the message. Eurozone policymakers are growing increasingly alarmed about the fall in the value of the dollar, since it threatens to choke off exports - the one area of growth in the 12-nation single currency zone. They would like nothing more than to wade into the foreign exchanges in concert with the Fed and the central banks of Asia to put a floor under the greenback, but they know that Washington has no interest in such a move.

Joaquin Almunia, Europe's monetary affairs commissioner, said last week:

"The more the euro rises, the more voices will start asking for intervention. It has to be a coordinated effort but it seems that our friends across the Atlantic aren't interested."


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