The US dollar loses substantially in one week
05 May 2006
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Since the last week of April, the United States dollar has suffered a dramatic decline against many of the big international currencies. There are several factors involved, but most prominent are a large debt and some currency shake-ups in countries such as China.
It is being speculated that this may be the beginning of a long-term decline.
A recent meeting of G7 finance ministers and central bankers discussed "global imbalances" and recommended corrective actions for all currencies to reflect their purchasing power. China raised its key interest rate shortly afterward to 5.85%, a country that holds a very large portion of U.S. debt. The total U.S. debt is currently acknowledged to be approximately $800 billion USD. In addition to the debt, there is also a very significant trade deficit (approximately$726 billion for 2005) that increases the burden on the value of the USD every month. The trade gap (more imports than exports) is currently at 7%, a number considered quite substantial.
The Euro, Yen, Canadian Dollar and Great British Pound have all risen significantly in the course of the past ten days or so. Several analysts have made statements that this could be more than the normal temporary decline that all currencies experience from time to time.
Based upon performance over the last few quarters and other trade and banking related issues, it is being speculated that the U.S. dollar may well be entering a decline that will sustain for a time period possibly extending for several years.
It is in the interests of many countries in the world to cooperate in protecting the U.S. dollar to some degree, but that does not necessarily mean that it is in their interests to elevate it above other currencies. Many countries would enjoy economic benefit for the value of the dollar to be lowered somewhat and to then remain there.
The attractiveness of working for American companies or companies that pay in U.S. dollars is therefore diminished. When negotiating a work contract, a person should carefully examine the payment terms for currency and which banks that wages are paid into.
At least for the near future, wages paid in Euro's or Pounds Sterling into European banks may be far better protected. Current analysis indicates that the USD will continue to suffer for at least the remainder of this year, although there is intense debate over how severely or how long the time frame may last.