Spring Break
Many factors cause U.S. dollar to drop
Mihir Oza
Issue date: 4/25/08 Section: Ed-Op
For quite some time Americans have felt a sense of certainty when holding a George Washington in their hands, and being of Asian descent, I truly know how glorified the dollar has been. When I would travel to India on occasion, I noticed the private veneration my relatives had for the currency I held due to the economic domination America has exhibited.
However, times of economic recession and degradation of the dollar bill are here. Right now as we pursue our daily activities, and it seems like we're not pulling out of this anytime soon.
The best way to understand the dollar slump is to compare it to the rivaling currency notes circulating the markets of our world. According to a New York Times article on April 10, "For the first time in more than a decade, the dollar bought less than [the Chinese] yuan, ending the day close to 6.9920."
The yuan slowly climbed and proved what economists and historians have been saying all along - China is the next competing superpower.
Ironically, Americans aren't alarmed. For years, American and European officials have criticized China because of the "unfair trade advantage" they've had because of their threateningly low cost of goods production and practice of producing more than they consume. The result of the yuan increase is not so dangerous because, according to the New York Times, it will "dampen America's widening trade deficit with China" and turn the attention of the now more powerful Chinese consumer to appreciate and purchase American goods.
In addition, a comparatively novice currency that was established only in 1999, the euro, flew above $1.60 this past week. Now we should take some time to accurately understand why the U.S. dollar is drastically slipping, aside from the standard explanations of our ongoing war in Iraq and growth of defaulted loans.
According to an ABC News article last September, the Federal Reserve dropped the interest rate "by half of a percentage point to 4.75 percent" while other central banks around the globe didn't. This "spread between the interest rate at the European Central Bank and the Federal Reserve is smaller than it has traditionally been" and therefore caused the value of the dollar to weaken compared to the euro.
However, times of economic recession and degradation of the dollar bill are here. Right now as we pursue our daily activities, and it seems like we're not pulling out of this anytime soon.
The best way to understand the dollar slump is to compare it to the rivaling currency notes circulating the markets of our world. According to a New York Times article on April 10, "For the first time in more than a decade, the dollar bought less than [the Chinese] yuan, ending the day close to 6.9920."
The yuan slowly climbed and proved what economists and historians have been saying all along - China is the next competing superpower.
Ironically, Americans aren't alarmed. For years, American and European officials have criticized China because of the "unfair trade advantage" they've had because of their threateningly low cost of goods production and practice of producing more than they consume. The result of the yuan increase is not so dangerous because, according to the New York Times, it will "dampen America's widening trade deficit with China" and turn the attention of the now more powerful Chinese consumer to appreciate and purchase American goods.
In addition, a comparatively novice currency that was established only in 1999, the euro, flew above $1.60 this past week. Now we should take some time to accurately understand why the U.S. dollar is drastically slipping, aside from the standard explanations of our ongoing war in Iraq and growth of defaulted loans.
According to an ABC News article last September, the Federal Reserve dropped the interest rate "by half of a percentage point to 4.75 percent" while other central banks around the globe didn't. This "spread between the interest rate at the European Central Bank and the Federal Reserve is smaller than it has traditionally been" and therefore caused the value of the dollar to weaken compared to the euro.
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