the US dollar?

Question

what made the US dollar weaken and what makes it stronger also do you think it will rise again soon? it isnt doing very badly but our economy is still doing very well and growing so how does a currency do bad when an economy is doing well? please explain thanks

Answer 1

Hi there.

This is a question I often hear. Currencies which "float" like the US Dollar have a value based on supply and demand. As people demand more USD they are willing to pay more of other currencies for the USD they demand. In recent years foreign countries which at one time held a large percentage of their own wealth in USD have begun to reallocate their holdings into other, now popular and viable world currencies such as the Euro. As firms and countries sell USD to purchase Euros and UK Pounds, for example, they are lessening the demand of USD, while at the same time increasing demand for the foreign currency in question. As less people demand USD with about the same supply and demand more of the foreign currency in question, the exchange rate of the USD goes down.

There are several forces which can change the exchange rate of any given currency. These include supply, demand as well as the demand for other currencies available for exchange. If the USD lessens in demand, for example, while at the same time the Pound increases in demand we have not one, but two forces driving down the exchange rate of the USD and up the rate of the Pound. The US Central Bank, which is named the Federal Reserve, could, for example, reduce supply of USD, which in turn could increase the exchange rate of the USD. Europe, for example, is a very export dependent economy. The recent spikes of the Euro have hurt European exports. (As the Euro gains value, it becomes more expensive for foreigners to buy their goods, which decreases demand for their goods and so hurts their exports.) There have even been calls for the Euro FED to increase the money supply (increase supply) to decrease the value (exchange rate) of the Euro to help spur exports.

In summary: The exchange rate of the USD is based almost totally on supply and demand of the currency. The only reason I say "almost" is because some foreign currencies are "backed" by a commodity or even "pegged" to the USD itself, which causes inefficiencies in this model. The weak dollar may hurt US citizens if they go abroad or if they want to buy a foreign good, but it will help Americans sell American made goods to foreigners, as it is now cheaper for foreigners to buy American made goods. This may be a good thing as the US has a rather large trade deficit.

I hope this helps. Explaining everything would take several full lectures. Fell free to email me with any further questions.

Answer 2

The removal of the gold standard in 1971, has hurt the US dollar considerably, since there is nothing to back the US paper currency, and nations are now starting to trade in Euro's. Also the Iraq War has been hurting our dollar, because the US is not paying for it now, so the dollar is weakened to compensate the fact that the US is not currently paying her debts.

The US dollar will only rise, if it returns to the gold standard, the Euro is now the competitive currency, and nations are starting to prefer the Euro, since other nations seem to trust the Euro more, since the EU is not currently involved in any wars or major debts. So, in order to compete with the Euro, we must return to the gold standard to give an incentive to our foreign holders to continue holding US dollars.

The size of an economy has nothing to do with the value of currency, just look at the USSR. They were the 2nd strongest nation in GDP, yet they had a weak currency, cause of mistrust.

Answer 3

we ought to seem again in the direction of Nixon whilst he left the gold and used the greenback as global cash. Since this date you fill the hudge gap of deficits through permit flip the clicking with inexperienced ink certain and on the finish the sector do not believe to extra the Dollar. We have no idea what might be the longer term however Bilderberg has no wrong way than to pay for Greenspan and complices...they made the error very long time in the past. Be certain the Euro isn't very healthful.

Answer 4

It is a combination of many things, the dollar is paper and paper on the world markets is useless, your founding fathers, in particular Thomas Jefferson never meant for there to be paper money, this was the brainchild of the rich bankers who created the central bank. as long as American's keep printing this worthless paper and flooding the markets with the stuff, it translates into inflation, in addition you have speculators, the Subprime problem, the war, Americas trillion dollar debt to China, 48 trillion dollar National Debt, America sells bonds to foreign countries to get loans, but the bonds are becoming worthless. e.g. the subprime fiasco, Banks all over the world are taking a beating, America's bread and butter industries are in the toilet. the world is growing up and getting rich and relies less and less on the America for its growth, Your President and is an Idiot and people around the globe can see America at in an instant and they hate all things American right now, so it is also an emotional thing, so their is less investment in American companies and more investment in China, India and Africa, , then there is the topic of Global Warming and America's resistance to doing anything about the problems is pissing people True or not People really believe America and its disastorus foreign policies are destabalising the world, the issue is so palpable that OPEC took a vote today to abandon the dollar
also American Bankers and Corporations do not mind a failing dollar, cheaper American exports, and substantially many countries currencies are pegged to the dollar, primarily in the Middle East, South America and Asia as such, this blunts these countries ability to become real economic power houses, as many of them produce oil and what do oil producing countries do with the money.. they buy weapons and begin to develop and buy technology military and non-military technology and technology is what keeps America ahead of the pack , it certainly is not their gas guzzling cars and trucks (Ford and GM) America has to be living in absolute fear, loosing its technological edge to emerging markets will bring America to it's Knees, So either Bin Laden is accomplishing what he wanted, or Americans are living in a bubble and really believe the world is not taking notice of their in action against this mad man who is running their country. Your Politicians are nothing more than reality TV personalities, and most of them are really creepy. I watch the debates and I think these people should be put into sanitoriums and straight jacketed.. Stopping the War and paying your bills should be America's top priorities, but mindbogiling it is not. American people must demand their politicians to invest in Africa and to do somethng about the war and Global warming

Answer 5

The weak dollar vs other currencies is due to a long term trade deficits and that investors in other countries recently losing confidence in the US, so they will no longer finance the deficit by lending us enough money to cover it. The real surprise was that it did not happen years ago, not that it happened.
It is not how much you produce compared to other countries, but how much you produce compared to how much you consume,

Answer 6

bc other countries r doing more wealth.
imagine ur company earns 1 dollar a day and ur opponent earns 5 dollars a day.
who grow more? ur opponent of course.

other factors change currency values like treasury interest rates and some other stuff too. but if i understood ur question i already answered.

Answer 7

I believe it was the Euro.