Word: dollarization
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Dates: during 1980-1989
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During the past three years, American interest rates have been as much as 4 percentage points higher, after adjustment for inflation, than rates in many other industrial countries. Partly for that reason, foreigners have been converting large amounts of money into dollars for investment in the U.S. That has pushed the value of the dollar up more than 50% since 1980 against an average often major currencies. As a result, American exports have become more expensive abroad, while foreign imports have grown cheaper in the U.S. Says Richard Heckert, vice chairman of DuPont, the oil and chemical company: "Business that...
...banks last week raised the prime rate that they charge corporate customers from 12.5% to 13%. That helped boost the dollar to record highs against the British pound and the Canadian dollar. The U.S. currency also hit a peak for the year vs. the Japanese yen, and a seven-year high against the Swiss franc. Many economists expect further hikes in interest rates and a continued strong dollar...
...economic ills without getting at the cause: high interest rates. The best thing the Government could do for U.S. industry would be to slash the federal budget deficit, which threatens to top $200 billion. That would reduce upward pressure on interest rates and allow the value of the dollar to drift down to a more moderate level. Congress last week passed legislation to cut the deficit by $63 billion over three years, but that is only a feeble first step toward easing the budget crisis...
American consumers will be best served if U.S. industry can learn to live with a robust dollar and the new reality of international competition. Too many companies became complacent in the 1950s and 1960s, when the U.S. had a big lead in technology and foreign competitors were still rebuilding their economies in the aftermath of World War II. Observes Robert Gough, a senior economist with Data Resources, a consulting firm: "The domestic market was so rich that the U.S. was not as aggressive in developing foreign markets as other countries." Many industries, including autos and steel, let factories become outmoded...
Perhaps the most important factor behind Caterpillar's troubles in foreign markets has been the overly strong dollar, because it makes the company's products more costly to foreign buyers. Since 1981, sales to Africa and the Middle East have fallen from $1.9 billion to $680 million. The decline is even sharper in Latin America, where they have dropped from $903 million to $266 million. Even though some trade with the Soviet Union is once again permitted, business is virtually nonexistent because the Soviets now view Caterpillar as an erratic supplier...