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From July 2001 through July of 2003 the US Dollar plummeted, losing 25% of its value relative to a basket of several key world currencies including the Euro, Japanese yen, Swiss franc and the British pound (Champion). As a floating currency the value of the US dollar is largely influenced by the supply and demand of dollars in the international foreign exchange market. ...
“Twin deficits” in the US economy have contributed to the decline of the dollar over the last several years (USD Bank). ... According to the Institute for International Economics, (IIE) every 1 % decrease in the value of the dollar narrows the trade gap by $10 billion (Benjamin). Using this as a basis the dollar would have to depreciate at least 13% to return the US economy to running a surplus. ... Our presumption then is that Bush, just as those before him and those to follow him, desires to run a surplus and in order to do so all of the following concerns must be addressed the current account deficit, foreign investment to fund the debt and US interest rates. As mentioned previously a dollar depreciation of 13 % would only be expected to alleviate the current account deficit. ... will ultimately result in a 15 – 20 % depreciation of the US dollar over the next 2 years.
International Trade
International trade has varied effects on the US dollar. If exports rise, or as international firms desire to import US goods, the dollar will rise. ... If the United States does not export as many goods, and continues as a net importer, the value of the US dollar will fall relative to other world
currencies. ... 2 billion (US) is traded across the border every day. ... At about $188 billion (US), Canada supplied 16.5 per cent of all US imports of goods and services, while Canada bought 19 per cent of all American goods and services.
In fact, the Canadian government’s Canada-US relations website boasts that, “the United States sells almost three times as many goods to Canada, a market of 30 million people, as to Japan, a market of over 125 million… [and] Canada is a larger market for US goods than all 15 members of the European Union combined. ...
Chinas economic system is increasingly more attuned to capitalism than communism, and there is a higher degree of social and cultural interchange between the US and China than there was between the US and the USSR. ... In the decade 1989 to 1999, investment by US companies in China rose from US$1.7 billion to US$21 billion,(15) with large commercial agreements including the US$3 billion Boeing contract. ...
The effect of the WTO and the dedication to the liberation of trade will have mixed effects on the US dollar moving forward. ...
Growth of Chinas GDP, Export and Import Volumes
(% change over previous year)
Given China’s large population and explosive GDP growth it is generally accepted that they represent a major force in the world’s economy and ultimately, the status of the US dollar moving forward. ... 3% to 0% by 2005; all extremely positive effects for US exports and therefore, the US dollar. ... 4% by 2005 furthering the demand for US exports. ...
China’s currency, the Won, is pegged to the US dollar and therefore the net effect on the Won will be zero however, increased exports from the US into China will have a positive effect on the US dollar against other floating currencies such as the Euro and Yen. Ultimately, due to the demand for US goods and services in China and other open trading partners, we believe that the dollar should strengthen. ... This has flooded the USA and foreign markets with US dollars, created a deep supply, thereby reducing its value.
In the near future, the US Central Bank will also have a positive effect on the value of the US dollar.
Approximate Word count = 3161
Approximate Pages = 12.6
(250 words per page double spaced)
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