Ending 7 Years’ Strong Dollar

`Is the era of strong dollar ending? `

Some people say that the days of strong dollar extending 7 years during the Clinton government is ending after the continual fall of U.S. dollar from March.

Some experts including Nobel Prize-winning economist Robert A Mundell insist the possibility of the sudden drop, saying, “dollar should have weakened, considering the fundamental situation of U.S. economy. ”

▽ Has it rushed into the 3rd stage of weak tone = Dollar turned to strong tone after dropping to 80 yen level in 1995. U.S. dollar has been maintained at 130 yen level until early this year thanks to the long prosperity of business revising economy textbook, as Robert Rubin, Former Treasury Secretary in Clinton administration had urged strong dollar, saying, “strong dollar corresponds with the national interest of America. ”

Viewers of weak dollar, however, insist that the seed of trouble was ripened during the period as the U.S. current account deficit soared to 4 percent of gross domestic product. The value of dollar couldn’t be adjusted, as foreign invest funds surged into U.S. stock and bond market made up for the deficit in current account.

Some analysts consider the latest safeguard measure against imported steel by U.S. Trade authority as the declaration of giving up the `strong dollar policy`. There is no reason for current U.S. government, which never minds trade disputes, to keep the strong dollar policy line, which is unfavorable for manufacturing industry. Ahead of the election in October, manufacturing circles would ask for `weak dollar`.

German Deutsche Bank evaluated, “weak tone has got into stride. From the experience, long-term change of tone starts when dollar is overestimated by 20 percent from optimum level. ”

▽ Sharp drop is not welcomed = Domestic experts view it as a `soft landing` though they recognize U.S. dollar’s turning to weak tone. That’s because the productivity and dynamism of U.S. economy is still world high, though unexpected good fight of Japanese economy and the recovery of U.S. economy led to the sharp decline of dollar.

Lee Eung-Baek foreign market team head in the Bank of Korea forecasted, “no country in the world wants the sudden fall of dollar. Dollar possibly goes into weak tone gradually. ”

Choi Jong-goo chief of foreign fund division in the Ministry of Finance and Economy said, “America would not choose weak tone of dollar driving funds out of U.S. capital market. ”

Lee Chang-Sun researcher of LG Economic Research Institute prospected, “there might be rise and fall in the value of dollar according to the business cycle in U.S. and Japanese economy under weak dollar trend in the long run. ”

Rae-Jeong Park ecopark@donga.com