CAMBRIDGE, Mass. — As the world's financial leaders meet in Washington this month at the World Bank-International Monetary Fund annual meeting, perhaps they should be glad there is no clear alternative to the dollar as the global currency standard.
If the euro were fully ready for prime time, we might well be seeing its dollar exchange rate jump to over 2.00 — not just to 1.65 or 1.70 as it seems poised to do anyway. You can't treat your customers as badly as the United States has done lately if they can go elsewhere.
Over the past six years, the value of the trade-weighted dollar has fallen by more than a quarter, as the U.S. has continued to rack up historically unprecedented trade deficits. With a soft economy, a badly compromised financial system, and serious concerns about rising inflation, the long-term dollar trend is downward, however the current crisis ends. And it is not over.