Weak Dollar Threatens World Economy

Financial Times and weekend edition of International Herald Tribune (IHT) reported that dollar decline might threaten the recovery of world economy as well as U.S. economy.

The exchange rate of dollar to won closed at 1,293 won on the 26th, and it have once soared to 1,331 won. Dollar to Yen rate fell to 128.14 yen from 134 yen in January, while dollar to euro rose to 0.8987 dollar from 0.86 dollar in January continuing declining movement. IHT reported experts forecasted that the value of dollar would fell to 120 yen, and 0.95 euro by the end of this year.

These two newspapers stressed that the sentiment of market is changing, though the change of exchange rate cannot be predicted. Especially deficit of U.S. trade is likely to strengthen the dollar decline. US current account deficit last year was 417 billion dollars (around 542 trillion won) or 4.1 percent of U.S. Gross Domestic Product (GDP). Organization for Economic Co-operation and Development (OECD) forecasted that the deficit might rise to 5 percent by 2003. It requires 10 per cent of global gross saving every year to make up a deficit. To escape from deficit, U.S. would need to increase its export volume by 40 percent by dropping export price, but it will increase the dollar fall caught in a vicious circle.

It is not easy to attract funds to fill up the deficit, as U.S. capital turns to Europe and southeastern Asian markets due to the recess of U.S. stock market from the Enron affair and dull earning rate. Three times more funds flow into Europe than into America.

So those countries that have relied on exports to the U.S. for their domestic economic growth like Japan and Europe are anticipated to be main losers. Financial Times said in its editorial, ¡°dollar decline should be happen gradually through the adjustment of supply and demand. The greenback’s value relies upon the willingness of other countries to fund U.S. trade gap. ¡°

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