Economics: Analysis of The Value of a Dollar and Comparisons with Other Major Currencies
The depreciation in the value of the Dollar has given rise to the trade deficit all across the globe; this is because the Dollar is the most widely used currency in exchange. When compared with the Euro, the value of the dollar is similar to its value in the mid 190s. The Economists believe that the value of a dollar when compared with a Euro is highly volatile and it is expected to rise as well as fall at the same time, this goes to show the volatility of the value of the dollar. This paper will throw light upon the value of a dollar, a comprehensive analysis of the value of a dollar will be provided and comparisons with other major currencies will also be made in this paper. The dollar greatly depreciated in the year 1971, this was because of the undermining of the Bretton Woods System introduced by Richard Nixon. The same resulted in the collapse of the fixed rate system in early 1973. "But the story doesn't end here. To help insulate t
Apart from random short-term fluctuations, any substantial nominal depreciation can only be sustained by future monetary adjustments permitting inflation at home or foreign central banks acquiescing to deflation abroad -- the trade-off between the two being somewhat arbitrary. But it soon became clear that the wage and price controls for repressing inflation were untenable and doing great damage to the economy -- so they were abolished by the end of 1973. " (The Worth of the Dollar, 10 December 2008). he American economy from the inflation ensuing from the dollar's devaluation, Nixon also imposed wage and price controls from 1971 into 1973 -- and leaned heavily on then Fed Chairman Arthur Burns to gun the money supply to make the economy boom and ensure Nixon's overwhelming re-election in 1972. The inflation touched new peaks in 1970s and the value of the dollar fell sharply in the exchange market. To deal with this situation, the representatives of leading industrial countries got together in New York to discuss the problem and come up with solutions. Another international rescue operation had to be launched because of the increasing inflation and the uncertain policies of FED. Many people have this false belief that if the US depreciates its value of the exchange rate then there will be no inflation caused at home neither will it cause any deflation oversees, this whole process is believed by many to improve the trade balance of the country. "In Europe, the sharp appreciations slowed economic growth causing what was then called "eurosclerosis. " The Japanese yen had appreciated the most, with additional American pressure creating the expectation of further appreciations. The exports will become less expensive which would mean that more and more people will buy the gods produced in the US and the export in the country will give good gains and the imports will be bought less by the Americans. Unsurprisingly inflation shot up in 1973 and hit almost 12% in 1974. In the early 1980s Paul Volcker took over as the new chairman of FED and imposed high interest rates as a result of which the value of the Dollar shot up by more than 50% because of the high foreign capital inflows. (The Worth of the Dollar, 10 December 2008).
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