Dollar Strong: Need Dollar Leadership

Close-up side view on a shiny gold-colored chain in the process of breaking into many scattered pieces, isolated on a black background.

matejmo/iStock via Getty Images

The United States is in a position now that does not come along very often.

The value of the U.S. dollar is very strong; it is in a historically strong position.

The United States needs to take advantage of this situation.

Maurice Obstfeld, an economist interested in and a participant in global economics, is quoted in the New York Times:

“Central banks have purely domestic mandates.”

“I don’t think central banks can have the luxury of not thinking about what’s happening abroad.”

The British pound has been trading near a record low against the U.S. dollar. Tuesday morning, September 27, 2022, it has been trading around $1.05 to $1.07.

Since June, the U.S. dollar has been trading around or below parity with the Euro. On Tuesday morning, it has been trading around $0.96.

It now takes about 7.2000 Chinese Yuan to acquire one dollar. A month ago, it took only about 6.9000 to acquire one dollar.

“In Nigeria and Somalia, where the risk of starvation already lurks, the strong dollar is pushing up the price of imported food, fuel, and medicine. That stone doll is nudging debt-ridden Argentina, Egypt, and Kenya closer to default and threatening to discourage foreign investment in emerging markets like India and South Korea.”

“‘For the rest of the world, it’s a no-win situation.”

This is according to Cornell economics professor Eswar Prasad.

But, Prasad also adds that the United States really has no choice for its monetary policy “but to act aggressively to control inflation.”

And, the effects are flowing even further.

World Economic Growth

According to the Organization for Economic Cooperation and Development, world economic growth is slowing.

Global economic growth has been downgraded to 3 percent this year, and an even weaker 2.2 percent next year, down from 2.8 percent a few months ago.”

The OECD is placing a lot of responsibility for this on Russian aggression against Ukraine, but, there are obviously a lot of other factors, including the central bank actions around the world, that are contributing to this situation.

According to the report from the OECD, Europe remains the most vulnerable region.

Germany is now expected to contract by 0.7 percent in 2023 after growing only 1.2 percent this year.

Both France and Italy are expected to grow by less than 1.0 percent next year.

And, the concluding warning is that, “The risks are very much tilted to the downside.”

In other words, the future is not too bright.

And, adding to all of this bad news, there is so much uncertainty in the world and how people are going to react to the situation that massive confusion exists about just how policymakers are going to react to the situation.

United States In A Leadership Position

Experts appear to agree that the United States has no choice but to “act aggressively to control inflation.”

But, given the fact that the U.S. dollar is in such a strong position, United States policymakers should move to become the global leader on the world’s financial structure.

Furthermore, given the transition the world is going through in terms of information technology, it would also appear appropriate that the United States would assume some more of the world leadership in the area of digital finance.

Information is spreading and growing faster than ever before.

In a real sense, information IS the world.

Finance? Well, finance is nothing more than information, zeros, and ones!

It is primarily the growth and spread of inflation that is creating the greater interdependence of the world.

That is, real globalization continues on uninhibited.

With the value of the U.S. dollar riding such a crest of popularity in the world, United States policymakers would be grossly negligent if they did not take advantage of this situation.

And, I cannot think of any other country in the world that I would want in this position.

The United States must take the lead in this situation.

The Move To The Front

The resolution to the current situation, I believe, is going to have to include a lot of communication and cooperation.

The world, as I have written many times, is in a position of radical uncertainty.

We don’t even know what some of the issues are.

This is a time when we need to work together, learn together, and grow together.

We need to drop some of our “walls” and “fences” and start talking about what can be done, not who is wrong and who is right.

We need to stop pointing our fingers at other people, accusing them of being the source of all of our problems.

We have got problems to solve. Solutions to find. Creations to construct.

Because of the environment that exists financially and economically in the world right now, the United States can step up and take the leadership in this space.

No one else is in this position.

The United States can be inclusive, it does not need to be dominant.

But, it can be inclusive because of the strength the dollar strength gives it.

Unfortunately, I don’t see the economic picture getting brighter for a while and conditions in the future may be a lot less favorable than they are right now.

My guess is, right now, that countries are going to all be thrown together sometime in the next year…or, two…or three….

Wouldn’t it be better to make the effort to come together now than to wait until the need to come together becomes unavoidable?

Be the first to comment

Leave a Reply

Your email address will not be published.


*