As the G-7 leaders met, the dollar‘s future was of prime concern. Suppose there’s been any issue that’s been topmost on the minds of the political leaders and the financial savvy in the present times. In that case, the dollar value does not seem reasonable owing to the dire economic conditions. With the world seeing a shift in the focus of the world economy from America and the European countries to Asia, particularly China and India, the question becomes all the more pertinent. There is an indication that economic power is shifting from the West to the Asian countries. However, some economists predict that there might not be a fundamental shift of economic power, though it might temporarily appear to be so owing to the current recession, which has been the worst since the last world war.
Depreciation in Dollar’s Value
According to an Associated Press report, the dollar’s value has been steadily decreasing in the foreign exchange markets for quite some months. Moreover, the dollar’s value has been steadily falling against the yen for about eight months. The depreciation of the dollar value seems to be retarding economic development, and it seems like it might bring recovery to a complete standstill. But the last week saw the dollar’s value up by 0.2 percent. The euro remained steady at $ 1.46, whereas the yen remained at $ 89.75.
The plunging dollar value harms importing from other countries because these countries will find it difficult to export goods to the US when the dollar value is down. Oil prices are expected to rise as it is valued in the US currency denomination. The dollar depreciation is an issue of concern not only for the USA or the West but also for the rest of the world.
According to Simon Derricks, Bank of Melon currency strategist, “It seems entirely logical that the G-7 may break with tradition at the end of their meeting this weekend and choose not to release a statement on the global economy and currencies. However, it is also clear from recent comments that tensions within G-7 over currency matters remain as high as ever.”
Economic Shift towards Asia
Jeane Claude Trichet, President European Central Bank, opines that excessive volatility would lead to financial and economic instability. Currency analysts feel that a large part of the tension caused due to the dollar is because of China maintaining an artificially low value of its yuan against the dollar to boost exports to the US, due to which it has now got excess trade with the USA. The International Monetary Fund and the World Bank feel that the uneven financial proportions between the US and China have made the presence of China significant in the G 7 issue.
Though the economic shift could be toward Asian countries, it might be long before that happens. Nevertheless, there is still hope for the US because marketing analysts feel that the Asian market is not as open for new entrepreneurs as the western market, which is a sufficient reason for the economic control remaining with the US.