The American Dollar In The Emerged World

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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History is made and then it is written

In 2009 President Barack Obama had set himself and the country the target of doubling US exports in 5 years, by 2014 . Foreigners, especially oil exporting countries since the beginning of the Iraq war, want to end the pricing of global oil in US dollars, perhaps by 2018.

Elementary economics dictates that the price of the dollar for foreigners to buy or sell depends on the demand for US dollars and their supply. Beginning with Richard Nixon’s withdrawal of the United States from the Bretton Woods fixed exchange rate system in 1971 to freely float the dollar for buys and sells in the global currency markets, delinking it permanently from gold 182 years after Adam Smith, cheaper dollar is feasible if more dollars are printed and made available to currency traders.

The dollar spigot since fall 2007, masked as a fire hydrant to reignite the embers of economic decline, is attempting to submerge the rest of the world along with America in a dollar flood until 2014 so that Obama can achieve the set target. Cheaper dollar means cheaper American goods for foreigners because they get more dollars for their currency.

There are other ways to give American presidents what they want besides depreciating the US economy for the period of a generation after a generation of prosperity since the end of the Cold War. The Great Moderation of prices after Paul Volcker does not need to be followed by The Great Immoderation of economic descent.

America had become the currency of choice, a de facto convenience, to engage in global trade since the end of World War II because of the relative stability of the single largest industrialized economy in the world.

The nearly 20 years of prosperity since 1989 has resulted in two cross currents: the exercise of power by the US dollar to effect geopolitical change and the consequential transitioning of the post-colonial, post-cold war nations to more open economies, higher standards of living and their desire for political and economic stability to maintain those living standards. Unlike the crises in Eurasia and Latin America in the 1990s, in mutual interest they are looking to America to enable that stability.

The United States paid for all it purchased, oil at the top of the list of its imports since the 1970s, in its own currency. Hence, the global dollar reserves. America paying for its needs in dollars increasingly became the norm with the gradual end of the British pound as the global currency of de jure (imperial) and de facto convenience after 1945.

There is no reason why other countries cannot pay in their own currencies after 2007 when the US dollar, which displaced gold in 1971 as the currency anchor, has faltered because of economic mismanagement by inducing moral hazard since the Alan Greenspan Fed from 1987: America fully liquidated the bad bets and debts of its financial institutions through the Federal Reserve before the economy began to recover in 2010, hoping to stave off or mitigate a future such domestic financial crisis with a cosmetic financial regulatory reform which consolidates, just as before the crisis, all new financial regulation and money supply with the Federal Reserve. Money supply is not a substitute for robust but parsimonious financial markets regulation. The price of economic recovery, as measured by one metric, is $3 billion in money supply for every 1 point rise in the Dow Jones Industrial Average (DJIA) from its low of 6500 to its high of around 13000 between 2007 and now, motivating the people of the United States and the president to call for more resources to investigate financial fraud in the markets.

The US dollar must, therefore, recede behind America’s borders, and the euro must end. Economic performance and commodity prices in the various local currencies must be denominated in a synthetic global currency such as the International Monetary Fund’s (IMF) Special Drawing Right (SDR). Countries keep each other’s currencies in reserve to buy and sell for their sustainable economic performance and the SDR exchange rates will be monitored through the IMF’s surveillance function.

The United States and the European Union must immediately begin accepting from Brazil, Russia, India and China (BRIC) their currencies for export payments and investment and vice versa to commence the transition toward adding 4 more currencies to the floating exchange rate system by 2022 and to permit some retraction of the US dollar from global trade.

The world has emerged from the shadows of war.

(Ceteris paribus, Federal Reserve policy is targeted to meeting the President’s exports doubling goal and the return of all troops from Afghanistan by 2014. We expect the share of US dollar to be less than about 70 per cent of world trade after 2018 and oil and other commodities to be denominated in the SDR equivalent of the currencies of the commodity exporters.)


About Chandrashekar (Chandra) Tamirisa
This entry was posted in Brazil and South America, China, Hong Kong, Taiwan and Mongolia, Russia and Eastern Europe, South Asia: India, Pakistan, Bangladesh, Nepal, Bhutan, Burma and Sri Lanka, Transformations LLC, World and tagged , . Bookmark the permalink.

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