Iowa Public Television


Dollar Declines; Foreign Currencies React

posted on May 23, 2003

Hello, I'm Mark Pearson.

As it enters the Memorial Day weekend the nation's economy seems to be adrift. Some economists fear deflation. To spur spending and investment, Federal Reserve Chairman Alan Greenspan says he's ready to cut interest rates -- again. Rates are already at 40 year lows and the economy still doesn't seem to be responding to a stimulus that in the past has worked.

The Bush administration is insistent the answer lies with the tax cuts, but its tax cut and spend policy may take a while to ignite an economic response.

Oddly the stimulus that may have the greatest immediate impact is already at work. In recent months the dollar has weakened rapidly against world currencies. And as unpatriotic as it may seem, a weaker dollar makes "American-made" more competitive in a world market.

Dollar Declines; Foreign Currencies React

The decline in the dollar may be just what the doctor ordered for the moribund U.S. economy in general … and for export-sensitive industries like agriculture in particular.

The cheaper dollar makes goods produced in the U.S. more affordable overseas. It also makes foreign imports more expensive for U.S. consumers. That makes it likely the controllers of the world's other major currencies, the euro and the yen, will NOT sit idly by.

In fact, the Japanese already have taken steps to make sure the dollar's decline doesn't go too far. The Bank of Japan said this week it will ease monetary policy, in effect introducing more yen into the economy.

In Europe, the new common currency stands at record highs against the dollar. With the European economy also struggling, some analysts predict it won't be long before the Central Bank pushes the euro lower.


Tags: agriculture economy money news