The future of the dollar against other world currencies, especially the euro, that have been steadily gaining of late, has been the subject of great debate among Saudi businessmen and world financiers. The debate was sparked by recent financial scandals involving corporate America. Some Saudi analysts say the dollar’s slide is short-lived and predict it will soon regain its position. Others feel the fall will continue, enabling the euro to advance toward parity with the dollar and even beyond. A third group held a middle position, not ruling out either prediction.
The American automobile giant General Motors has for months complained that a high dollar reflected negatively on exports and has asked for government intervention to protect them. For their part, and for many months the Europeans have refused to bend to US company pressure which seeks to lower the value of the euro. Wim Duisenberg, president of the European Central Bank(ECB) has been rock solid in resisting such attempts. He has maintained from the start that the value of the euro was correct. Lowering interest rates would change nothing and could have negative effects on the European economy, leading to inflation above the fixed annual two percent rate.
Many economists still regard the dollar to be low against the euro. They consider Duisenberg’s position logical. Some, however, believe that a sustained euro rise will reflect negatively on economic growth in 2003.
This position of the dollar vs. the euro remains a matter of concern for the American treasury. However, it does not feel the dollar is threatened and so refuse to intervene in any way that would compromise market freedom.
Following the recent stock market frauds, the US government moved to restore confidence by streamlining the powers of the regulators. The government is aware of circumstances surrounding the value of the dollar and is looking to American exporters to benefit from price differences. These have for years sought to increase exports from automobiles, aircraft, drugs and medical equipment to heavy machinery, subsidized food and agricultural products.
American consumers seem unconcerned with all this talk about the value of the dollar. For them all they need is to use the green paper to buy things whose price is either fixed or subject to slight fluctuations. The American consumer is convinced that the dollar is maintaining its purchasing power.
Anything else has to do with price changes in goods and services. The dollar is a dollar at all times. The Americans seem to overlook the fact that their investments are losing value and their savings are disappearing. This is not because of the so-called terrorism following Sept.11 but because the fall in stocks originated when George Bush took office in January of last year.
A drop in the inward flow of dollar remittances, capital flight to countries where it came from plus lower corporate profits created new areas of attraction in which billions of dollars flowed —and are flowing — to markets in Eastern Europe and Asian countries such as Thailand, South Korea and China.
Duisenberg has linked the weakness of the dollar to doubts surrounding the strength of the American economy, a lack of trust among euro members and fears of high inflation and weaker financial markets.
The countdown for the dollar reflects a worldwide conviction that the American economy in truth lacks perfection while its presumed revival is undermined by an administration busying itself with wars on all fronts and fighting financial terrorism in reaction to any event it perceives as a threat to the country.