Word: dollarization
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Dates: during 1980-1989
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...rumblings of a dollar comeback have been building for months. The resurgence of the U.S. economy after the crash and the narrowing trade gap persuaded many currency speculators that a declining dollar was no longer warranted. But they lacked the confidence to bid up the currency because they feared the U.S. and other industrial countries might simply intervene in the markets and put the dollar back in its lowly place. In late June, however, that perception changed sharply. At their Toronto economic summit meeting, the leaders of the seven major industrialized countries, or G-7, issued a communique that showed...
...currency traders feverishly bought dollars, most central banks stood by idly until the momentum began to grow. The banks of eight European countries -- West Germany, Britain, France, Italy, Switzerland, Austria, Spain and Belgium -- finally intervened by unloading some of their stocks of the currency. But the dollar kept climbing because the two largest countries -- the U.S. and Japan -- refused to resist the trend...
...short run, a slightly stronger dollar could be helpful all around. European governments have wanted to push up their interest rates to contain inflation but have not been able to do so until now because that would have made their currencies too strong against the shaky dollar. In the U.S., the Reagan Administration and Federal Reserve Chairman Alan Greenspan seem to agree that the mildly stronger dollar would help keep inflation in check by making imports cheaper...
Some monetary experts, however, think the dollar's boost is merely a smart psychological ploy by the G-7 to put a solid floor under the U.S. currency rather than drive it upward. Said a Senate staff member: "The central banks are tired of having to intervene all the time to keep the dollar from dropping...
...long as the U.S. trade deficit keeps improving, the G-7 strategy will have plenty of supporters. But the dollar could tumble at the first sign that the U.S. trade position is not improving as much as the most recent figures suggest. "We've been on a roll," says Robert Hinton, a vice president and foreign-currency trader at Barclays Bank in Manhattan. "But if the trade figure suddenly goes to $13 billion or $14 billion, you can kiss the strong dollar goodbye...