Word: dollarization
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Dates: during 1980-1989
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Just about as the dollar selling heated up Monday morning, Ronald Reagan appeared before an audience of business executives and Government leaders in the East Room of the White House to deliver a major foreign-trade speech. His talk attempted to strike a precarious balance between free trade and what the President called fair trade. "I will not stand by and watch American workers lose their jobs because other nations do not play by the rules," said Reagan...
Though they deny it, Reagan and his Administration have already changed policy sharply on the dollar. The President long viewed the greenback's strength as a source of pride, a testament to the robustness of the U.S. economy and the eagerness of foreigners to swap their own currencies for dollars to be poured into American investments. The reputation of the U.S. as a "safe haven" for investments that will not be ravaged by inflation or undercut by leftist politicians certainly has been a factor in the dollar's rise, but most economists outside the Administration give far greater weight...
Government borrowing to cover the red ink has kept "real" (that is, inflation-adjusted) interest rates in the U.S. well above comparable rates abroad, pulling in much foreign capital from investors who seek the highest possible return on their savings. Whatever the cause, officials always conceded that the dollar might get too lofty and that intervention on the exchange markets might be needed to bring it down. But they were wary of actually doing it. Privately, some U.S. officials described intervention as "spitting in the wind...
...then the shift by Washington not only to intervening itself but to orchestrating a coordinated effort by other governments to do the same? Primarily because a drop in the dollar holds the greatest promise of reducing the trade deficit and easing protectionist pressure on Capitol Hill. Indeed, unless the dollar comes down, many economists doubt that anything else will do much good...
...biggest cause of the trade imbalance, however, is that the overvaluation of the dollar has made U.S. exports artificially expensive to foreign buyers, and imports artificially cheap to American consumers. Quick example: loggers in the Pacific Northwest figure that the dollar's bloated exchange rate against its Canadian cousin (an American buck was worth $1.36 Canadian last week) gives Canadian lumber exported to the U.S. an automatic 30% price advantage, contributing to a $20 billion deficit in U.S. trade with Canada. With curiously bad timing considering the mood in Washington, Canadian Prime Minister Brian Mulroney last week proposed...