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Dollar Breakdown

Japansanskriti mehta, International school of the Sacred heart
February 2, 2012

NEWS

    In 2004 US economists said, “A weak dollar isn’t always bad, and is sometimes done on purpose. It makes our exported goods cheaper, which can create jobs.” Today, in 2011, the same issue exists, but on a much larger scale. Unemployment has reached 9.1%, protests on Wall Street are causing chaos, and CEO’s of major companies are holding conferences in Berlin. It seems as if the economy is progressing towards another serious recession. Amongst the protests, natural disasters, and economic ups and downs, the central issue still remains the falling dollar. Up until now, the dollar has been the dominant currency, but economists predict that this might change in the future.   
     Low interest rates, national debt, and trade deficits are prime reasons the value of dollar has decreased. Due to a national debt of about 15 trillion USD, which has, according to the U.S. Debt Clock, been increasing 4.01 billion USD daily since September 28, 2007, fewer people in the world want to hold dollars. Since strong currencies are associated with strong economies, the dollar’s value has significantly decreased.  
   There are two reasons a currency loses value: devaluation and depreciation. In the U.S.’s case, the government allowed the dollar to lose value in order to reduce unemployment. However, this action soon turned into a depreciation (which is stimulated by the forces of the market).
      The U.S. government wished to make imports of goods more expensive to induce consumption of domestically produced goods, which should have resulted in stimulating the economy, as it causes exports to become cheaper. Theoretically, other countries would have found U.S. goods cheaper and purchased more of them, thereby stimulating the country’s economy by causing more goods to be produced locally and creating more jobs.
     However, this plan was not successful in the U.S. and did not alleviate unemployment. The dollar’s value with respect to 100 JPY has fallen from 1.21 USD to 0.76 USD in the past four years. This transition adversely affected other economies, including Japan’s. For example, Japan began offering subsidies to students in order to stimulate the economy; this included the 90,000 JPY some eligible ISSH students received last year. For most countries, the weak dollar meant that their exports to the U.S. became more expensive. As a result, production levels fell. Moreover, the sharp drop in the dollar’s value meant that other countries’ loans to the U.S. lost value and interest in their own currencies.
  There were also difficult repercussions for American citizens. Travelling abroad became much more expensive in dollar terms.  Since the U.S. already relies on imports so much, making the exports cheaper did not compensate for the deficits or low interest rates, and did not improve the unemployment situation. Lastly, since imports are more expensive, inflation increased, which further devalued the dollar.  
      In contrast to the situation for Americans, a weak dollar is actually a very good thing for Tokyoites applying to college in the U.S. whose parents can pay in JPY, or any other strong currency. Four years ago, a college tuition of 50,000 USD would have cost about 6,134,450 JPY. Now it costs about 3,816,000 JPY. The price in 2011 is approximately 38% less than the value in 2007. This shows that on the economic world, one person’s expense is another person’s benefit.
Photo of crumpled dollar bill on an American flag, from Flickr.

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