Word: dollarization
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Dates: during 1980-1989
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Businessmen fear that the strong dollar will force the U.S. to close its markets to foreign products. Says Aldo Palmeri, managing director of Italy's Benetton Textile group: "Our overseas exports are increasing by 100% a year, but before long American industry will be demanding restrictive measures against imports." Concurs Switzerland's Fritz Leutwiler, former president of the Bank for International Settlements: "We should be very concerned about the high dollar pushing protectionism in the United States...
Perhaps the most dangerous effect of the roaring dollar is the instability created in the international economy. Business works best in an atmosphere of known and predictable situations. When a currency as important as the U.S. dollar rises for no apparent reason, crisis becomes an executive's fellow traveler, and business suffers. Warns Henry Kaufman, the chief economist of Wall Street's Salomon Brothers: "This movement upward in the value of the dollar will, eventually, undermine our economic and financial stability...
Perhaps surprisingly, many economists put the primary blame for the strong dollar on the U.S. budget deficit, which is expected to reach a record $220 billion this year. According to this argument, the Government's voracious appetite for funds has kept U.S. interest rates at steep levels. That has enticed foreigners to invest huge sums of money in the U.S., which has driven up the value of the dollar. Among the leading advocates of this theory are Federal Reserve Chairman Paul Volcker and Harvard Professor Martin Feldstein, who was chairman of Reagan's Council of Economic Advisers until he resigned...
...expected to become a debtor nation this year for the first time since 1917. The Institute for International Economics predicts that if the dollar stays strong, the annual U.S. trade deficit could hit $200 billion in 1990. By that time, says the institute, the U.S. could owe foreigners more than $1 trillion...
Some experts, including several top monetary officials in the Reagan Administration, argue that the budget deficit and interest rates have little to do with the dollar's value. They note that the dollar has continued to rise even though the difference between interest rates in the U.S. and Western Europe has narrowed considerably in recent weeks. Thus, they argue, it is the dynamic performance of the U.S. economy, not high interest rates, that is drawing in foreign capital. Observes Republican Congressman Jack Kemp of New York: "I don't see people lining up to buy Peru bonds despite high interest...