Someone on The Economist board illuminated the strength of the long term USD exchange rate trend.
1969: USD/CHF 4.3 - today 1.02, loss approx.75%
1969: USD/YEN 390 - today 91, loss approx.75%
1969 USD/DMark 3.8 in 1996: 1.5, loss approx. 60% now loss is also 75% if you extrapolate with the Euro gains.
The USD has been going down since free exchange rates. It will probably simply continue to do so. What is amazing is that it is still the reserve currency with such a performance. With another 75% loss against major currencies over the next 40 years some of the current unsustainable currency imbalances should be fixed.
2 comments:
No J, I don't think that these long term trends will be reversed. Here are my two arguments against dollar devaluation fixing currency imbalances and trade imbalances:
1. As regards trade imbalances, I saw an article online that stated that in the last week the central banks of three East Asian countries were buying dollars in order to keep their currencies from appreciating. Many of these countries do not have an alternative to using undervalued currencies to export cheaply to the United States. As long as the current model holds these countries will continue to follow the dollar into the gutter in order to chase exports. The Yen should easily be worth more than it is now, as should a few of the other currencies.
2. A noted above, the currency imbalance exists by design and will not go away until a new model emerges and all parties have no choice but to comply with it.
To restate my argument a different way, you are arguing that minor changes within the current system will stabilize it. I am arguing that the current system will continue, including its imbalances, until it fails completely and is replaced.
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