Word: dollarization
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Dates: during 2000-2009
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...Arguments against the status quo have their merits. Over the past two years, global dependence on the dollar has been at the heart of the world's nastiest economic problems. Early in 2008, a weakening dollar was a factor in spiking prices of energy, commodities and food, which placed a disproportionate burden on the limited incomes of the poor. The dollar-dominated system has also allowed the U.S. to finance its budget and trade deficits at a low cost, which perpetuated the global imbalances that contributed to the current economic crisis. A system like the one proposed by Beijing, argues...
...There is also the possibility that the dollar, after its recent show of strength, will again weaken in value against other major currencies, eroding its attractiveness as a reserve currency. Confidence in the health of the U.S. economy, and therefore the U.S. dollar, could plunge because of continued large U.S. current-account deficits, an unstable banking sector and a recession-busting, expansionist monetary policy. The budget deficit, which the Congressional Budget Office estimates will reach $1.8 trillion this fiscal year, or 13% of GDP, is reaching heights not seen since World War II. (See the top 10 worst business deals...
...dollar has also been supported recently by the deleveraging taking place within the U.S. financial system. Desperate for cash, U.S. financial institutions have been liquidating foreign assets and repatriating the funds, pushing up the value of the dollar. As that process plays out, a key support of the dollar's value could be removed. Currency markets are clearly jittery. In late March, U.S. Treasury Secretary Timothy Geithner sent the dollar tumbling when he said he was "actually quite open" to China's proposal for a greater role for SDRs. The dollar lost 1.3% against the euro within 10 minutes...
...Despite all the nervousness, the dollar is not necessarily destined to decline. Large budget deficits don't automatically lead to weaker currencies. In the early 1980s, the dollar strengthened even as the Reagan Administration embarked on a spending spree, because higher interest rates attracted foreign money, pushing the dollar up. The budget deficit "is not at the center of thinking about the dollar," says Richard Portes, an economist at the London Business School...
...greenback has also shown surprising resilience amid the financial meltdown, since investors continue to see it as a safe haven in bad times. Even after some recent losses, the dollar is 15% stronger against the euro than it was in mid-2008. The dollar has maintained its popularity in part because most major currencies don't look much more attractive. Investors judge the value of a currency relative to others. Though the U.S. economy may be in its worst condition in almost 30 years, the rest of the industrialized world isn't any better off. "The dollar should be much...