Word: dollarization
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Dates: during 1980-1989
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...Administration, in concert with four other ranking financial powers, began what amounts to a campaign to devalue the U.S. dollar. Emerging from an extraordinary Sunday meeting at the Plaza Hotel in New York City, Treasury Secretary James Baker and finance ministers and central bank governors of Britain, France, West Germany and Japan appeared before TV cameras with a major announcement. "Orderly appreciation of the main nondollar currencies against the dollar is desirable," said the five, and they "stand ready to encourage this." Blunt translation: the greenback is grossly overvalued in terms of how many pounds, francs, deutsche marks...
...most immediate question is what the Reagan Administration and Congress are going to do about the outsize dollar and trade imbalances. That they have to do something, and quickly, is not in any doubt. The U.S. trade deficit, or excess of imports (shoes and shirts from Taiwan, cars, steel, just about anything made in Japan, to cite some particularly contentious items) over exports (farm products, jet planes, computers are major ones), is heading toward a record $150 billion this year. That is nearly four times what it was as recently as 1981. The surge in imports and lag in exports...
Unhappily, the safest prediction is that no one is likely to focus soon on the one action that would do the most good: chopping the budget deficit. That would permit an effective dollar devaluation, which would benefit trade far more than any other conceivable legislation. But it would require cuts in Government spending going well beyond any that Congress is preparing to enact this fall, and probably tax increases as well. Moving to limit imports is so much easier, but so much more costly in the long...
There was no need; money traders got the message. As soon as the exchange markets opened Monday morning, private dollar sales began and continued in such heavy volume that American greenbacks fell about 5% against major currencies that day alone. For the rest of the week, though, the dollar drifted down slowly enough, despite actual, coordinated sales by the five governments, to leave the long-range impact of the devaluation drive in doubt. Money traders believe the five governments have specifically targeted the dollar-yen exchange rate; the yen gained 8.8% last week against the greenback...
...which its currency could be exchanged for other monies. Under the system of floating exchange rates that has prevailed for the past dozen years, governments can try only to influence the decisions of money traders and their clients, who can switch tens or even hundreds of billions of dollars within hours (see box). And many complex factors have been keeping the dollar high. To bring about a deep and lasting drop may require not only prolonged and heavy sales of dollars by the U.S. and its allies but fundamental changes in their economic policies, above all a much greater reduction...