Eco USD

Eco USD

1. Introduction
This essay sets out to analyse an article (refer to Appendix 1) published on Forbes.com, written by Carl Delfeld, an editor of Chartwell Global ETF investor. Delfeld’s article was written in response to an earlier article (refer to Appendex 2) by a Harvard professor who is also an ex-chairman for the Council of Economic Advisers under President Reagan. Delfeld refutes the optimistic view of the weakening dollar and argues that a weaker dollar actually does America more harm than good. We start off looking at some statistical data of the USD’s performance historically and investigate the reasons why the greenback has been on decline, the essay then elaborates on the impact this phenomenon on the rest of the world and particularly America in the context of macroeconomics and finally, critically analysing the reasons why the weakening USD is bad (and good) for the country.

2. Issue Background and Introduction: The USD Weakening
i.) The US Dollar:
The US Dollar is the world’s most commonly used reserve currency after the Euro with an accumulation of more than twice of its nearest competitor. As of 2006, the composition of US dollar in world’s foreign exchange reserves is more than 60% and this lead has been maintained by the US since 20th century following the downfall of the UK pound sterling’s position as the world most powerful currency. (wikipedia.com: 2007) However, for the past two years the dollar has been on steady decline against many major currencies, hitting an all time low against the Euro, multi-decade lows against other currencies and also new lows against oil, wheat, and a 28 year low against gold. (Chainani R. 2007)

ii.) Reasons for USD Weakening:
There are many theories that many economists point their fingers at for the USD weakening, some blaming George Bush’s Administration for mismanaging the economy and waging war on Iraq and Afghanistan. It was believed that the fall was due to expected slow US economic...