American Currency Exchange Rates: Current Policy, The Future And Foreign Money Considerations
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The American money exchange rate is recognized universally as the world’s reserve currency. Many worldwide contracts adopt the USD exchange rate as the official currency for business. The most celebrated is the pricing of oil. In the past, oil pricing has contributed to the strength and stability of the exchange rate for US dollars. The currency is used by many travelers due to the fact the money exchangers worldwide recognize the US dollar, often more so than the local currency itself.
In recent years, the US dollar has been in steady decline in terms of worldwide currency purchasing power. The introduction of the Euro is partly responsible for this. As is the deterioration in US economic conditions. Fiscal conditions and monetary policy both contribute to the US exchange rate, indirectly through influencing market action. Interest rate differentials are considered to be a considerable influence as is the state of the countries current account deficit. Americas growing deficits and policy of currency debasement is contributing to a lessening of the currency exchange rate as investors seek higher yields elsewhere.
The Future of the US Dollar
Many international nations have accumulated large US foreign reserves. Countries such as China and Japan have large trade surpluses and maintain holdings in US treasury bonds. The Gulf States also have considerable US dollar holdings due to oil revenues. US trading partners therefore take the US currency foreign exchange trading rate very seriously. With the trend of the US currently trending down, it results in an erosion in purchasing power for anyone holding US dollars. This has prompted nations to consider diversifying their foreign exchange holdings and possibly accepting payment for oil in other currencies. Iran has already adopted the acceptance of non-dollar denominated currencies and it is quite possible that other nations will follow. South Korea is also no longer purchasing US Treasury bonds, bills and notes. As of 27th March 2008, Kwag Daehwan, head of the South Korean National Pension Service, stated that ‘the portion of our Treasury investment is already too big and Treasury yields have fallen a lot”. With inflation accelerating on a worldwide basis, it is understandable why investors would seek other asset classes that are not exposed to the US dollar and offer a rate at least comparable to the rate of inflation. These factors will weigh heavily on the dollars future.
It will take a strengthening of the US economic position and reversal of the current interest rate trend to begin to attract foreign capital and restore confidence in the exchange rate for US foreign currency money. It is also quite possible that the US currency will lose its status as the world’s reserve currency.
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