December 8, 2004

WEAK DOLLAR: 'MAMMOTH U.S. DEFICITS' COULD PROVE 'DISASTROUS'

 

KEY FINDINGS

 

**  Global dailies blame the dollar's "sharp fall" on America's "excessive deficits."

**  The weak dollar poses "a real danger to global economic development."

**  Critics accuse Washington of "letting the world shoulder its difficulties."

**  Asian, German papers surmise the U.S. "actually is happy" to see the dollar decline.

 

MAJOR THEMES

 

'Profligate U.S. government' and 'extravagant' citizens--  The "weakening dollar trend" is due, papers judged, to both a "widening budget deficit" and "America's yawning current account deficit."  As there is "no political will" in the U.S. to address its "astoundingly high" deficits, observers predicted the "dollar's weakening is likely to continue."  Hong Kong's independent South China Morning Post saw no prospect of reversing the weakening dollar trend without a "radical shift" in U.S. fiscal policy.  This seems unlikely despite a "chorus of disapproval from America's major trading partners."  Since the U.S. "has been living beyond its means," the U.S. economy "appears to be on shaky ground." 

 

A 'negative effect on the world economy'--  Outlets termed the "free-falling dollar" a "major international economic policy issue" because if the dollar collapsed, "not only the U.S., but the entire world" would "feel the reverberations."  In such a scenario, the pro-government Saudi Gazette warned, a "U.S. recession would be a near certainty.  And...an America-centric world would follow."  Germany's centrist Der Tagesspiegel feared potential "global recession," while a Malaysian observer forecast a "new Asian financial crisis."  Ethiopia's business-oriented Addis Fortune noted how a "tumbling dollar" threatens to impact "inflation rates of all countries stretching from Taiwan to Timbuktu." 

 

'Weary of bankrolling free-spending American ways'--  Dailies assailed Washington for asking the rest of the world to "foot the bill for...its luxurious consumption habits."  A German paper noted that the U.S.' deficit policy "only works because Europeans invest money in America every day," while the independent Manila Times stated that Asian central banks are "effectively financing America's growing national debt."  Analysts split on how best to deal with the sliding dollar.  Britain's independent Financial Times concluded that "the ECB will have to go it alone" through unilateral intervention if the U.S. does not reduce its deficits.  But German and Arab writers asserted that only "joint efforts can stop the decline of the dollar."

 

'Not sincere'--  Skeptics opined that the U.S. "will tolerate" the dollar's fall, despite ostensible support for a strong currency, because "devaluation benefits" the U.S. economy by boosting exports.  China's official Outlook Weekly predicted further "controlled depreciation" because of U.S. "conniving in the weak dollar."  Malaysia's independent Kwong Wah Jit Poh agreed the U.S. "has quietly allowed the dollar to remain weak."  A few observers posited potential rivals to the dollar.  Latvia's centrist Diena said the euro increasingly threatens "the throne upon which the dollar perches"; a Thai writer noted Asia could become "a yuan--not a dollar--zone."

 

Prepared by Media Reaction Branch (202) 203-7888, rmrmail@state.gov

 

EDITOR:  Ben Goldberg

 

EDITOR'S NOTE:  Media Reaction reporting conveys the spectrum of foreign press sentiment.  Posts select commentary to provide a representative picture of local editorial opinion.  Some commentary is taken directly from the Internet.  This report summarizes and interprets foreign editorial opinion and does not necessarily reflect the views of the U.S. Government.  This analysis was based on 37 reports from 15 countries over 17 November - 8 December 2004.  Editorial excerpts are listed from the most recent date.

 

EUROPE

 

BRITAIN:  "Danger -- Falling Dollars"

 

The left-of-center Guardian remarked (12/1):  "The sharp fall in the dollar on the foreign exchange markets--and the consequent rise in the value of the euro--may seem like problems that are of little direct concern to the UK, which never signed up to the euro in the first place.  That would be a serious mistake.  If the U.S. economy is propelled into a crisis by a free-falling dollar the whole of the rest of the world will feel the reverberations.  What can be done to halt the fall?  The core of the problem is that the U.S. is still running excessive deficits on both its trade and its budget....    There are obvious measures the U.S. could take....  Increased fiscal discipline will cut consumption, increase savings, and help the trade deficit.  But a lower dollar is also needed to steer the economy towards production by making imports more expensive and U.S. exports cheaper.  The difficulty is that there is no political will in the U.S. to address its twin deficits in a meaningful way.  The administration's attitude to the dollar is to proclaim publicly that it wants a strong currency while quietly allowing it to fall.  But every decline in the dollar boosts the euro, thereby hitting EU export prospects and making it even less likely that Europe will escape stagnation.  The European Central Bank's response has been to consider an increase in interest rates to beat the inflation threat from higher oil prices, a barmy move that would make the euro even more attractive to foreign investors.  The correct policy for Euroland, as yesterday's OECD report obliquely implies, is to lower interest rates to make the euro less attractive while simultaneously putting money into pockets to boost consumption....  If lower interest rates do not work then it is also open to the ECB to follow Japan, South Korea and China by intervening in the markets to buy dollars....  Intervention of this kind is more likely to succeed if it happens through coordinated intervention rather than by individual countries defending their patches.  As Lawrence Summers, president of Harvard University, has observed, the days are gone when this sort of deal can be done by an inner cabal of the G-7 leading nations.  What is needed is the wider G-20 grouping which includes Asian countries such as China and India (as well as Japan which is a G-7 member) who are financing--for the time being--most of the U.S. deficit.  The OECD is remarkably sanguine about the immediate world outlook, believing that there will be recovery after a dip this year.  But, equally, it admits it does not know what the extent of the dollar's decline might be.  It would be better to have contingency plans in place now, rather than hope the dollar crisis will pass away."

 

"Bush Still Lacking Battle Plan For The Other War"

 

Bronwen Maddox commented in the conservative Times (12/1):  "It is a good sign that President Bush is revamping his economic team, one of the huge weaknesses of his first term....  The problems are not insuperable, but they are large, interconnected, and the solutions are not entirely under Washington's control.  First, in the public's mind at least, is the government budget deficits....  A matter of intense debate among economists and investors, is the U.S.'s current account deficit, which reflects, roughly, its trade deficit--the difference between the value of what it buys from overseas, and what it sells.  It has been buying much more than it has been selling, and the current account deficit is now 5.7 per cent of gross domestic product, an astoundingly high level.  Debate has rattled on about whether these deficits matter.  But the slide in the dollar has prompted alarm that they could send the currency into an uncontrollable plunge, and push up inflation.  The Bush team knows it has a difficult case to make.  Two weeks ago, Alan Greenspan, chairman of the Federal Reserve, expressed sharp concern about both the budget and current account deficits.  So has Congress, even if it is firmly under Republican control....  Bush needs, this time, a team who can give him a coherent plan for tackling problems for which there no easy answers, but which could, in four years' time, easily eclipse Iraq."

 

"Unilateral Action Can Stop The Dollar's Slide"

 

Paul de Grauwe, professor of international economics at the University of Leuven (Belgium), commented in the independent Financial Times (11/30):  "The [European Central Bank -- ECB] should make it very clear that it will not allow the dollar to drift down further and that it will use all the means it has to stop the decline.  And it has the ammunition to fight the speculators:  there are almost no limits to the amount of dollars it can buy.  It is often said that intervention can only work well if it is a coordinated action by both the U.S. and eurozone monetary authorities.  Of course, a joint intervention strategy would help....  It would create the perception that the monetary authorities are strong and united in fighting the speculators.  The recent pronouncements of the U.S. treasury secretary, however, rule out such a strategy in the short run, suggesting that intervention by the ECB alone is doomed to failure.  It is not....  If the U.S. does not come forward, the ECB will have to go it alone.  If the bank is able to create a perception that it is strongly determined to halt the decline and that it has the means to do so, such a strategy can succeed."

 

"Europe Must Help Slow The Dollar's Decline"

 

Brendan Brown commented in the independent Financial Times (11/26):  "From a global perspective it is evident that...eurozone rates should be well below U.S. rates.  A substantial rate spread would help power the capital flow out of savings surplus regions into the U.S.  Asian savings surpluses, in particular, are apt to seep into euros.  Euro rates have to be well below U.S. rates if this diversion is to be contained and offset by flows from the eurozone to the U.S."

 

"The Strong Dollar Heads South Again"

 

The independent Financial Times observed (11/18):  "[U.S. Treasury Secretary] Snow appears very relaxed about recent currency developments:  perhaps too relaxed.  Yes, global growth is strong.  The dollar needs to depreciate further to erode an unprecedented U.S. current account deficit and the sooner the better.  But bilateral depreciation against the euro and even the yen and the Korean won as well will not do the trick.  It is in the U.S. interest to spread the burden of adjustment more evenly so as to proceed smoothly."

 

"The American Way"

 

The left-of-center Guardian commented (11/17):  "When the U.S. Treasury Secretary John Snow speaks...he will have plenty to say about Europe's weak record on economic growth.  Yet we fear Mr. Snow will have too little to contribute on the mammoth U.S. deficits in trade and public finance that have led to a faltering U.S. dollar.  That is because U.S. treasury secretaries prefer to repeat the mantra that a strong dollar is in America's interest, even when it patently is not, in order to avoid being blamed for setting off any market tremors.  Mr. Snow's attitude echoes of a famous remark made by one of his predecessors:  'It's our currency, but it's your problem'."

 

FRANCE:  "Gaymard And The Dollar"

 

Left-of-center Le Monde editorialized (12/1):  “Our new finance minister’s first preoccupation will be the dollar’s weakness....  Immediately upon arriving at his new ministry, [Herve] Gaymard is facing a major international economic policy issue, where his margin of maneuver remains very narrow.  The position of the dollar is part of a conflicting relationship between three major zones:  the U.S., Europe and Asia.  The U.S. considers itself not guilty and refuses to acknowledge that the U.S. is living beyond its means, with excessive consumption and too little savings, while it accuses the rest of the world of too little growth...  What can our new minister do?  First of all, keep quiet, so as not to fuel intra-European disagreements, which in turn could be read as a green light by speculators....  Is it still possible to convince the American and Asian leaders that the dollar has dropped too far and get a joint declaration from the G-7, like the one in Boca Raton last February?  Probably not.  The new Bush team does not seem ready for this.  The only option is to work directly and subtly on the financial markets.  Our new minister needs to become the champion of that particular battle.”

 

GERMANY:  "The Dollar Problem"

 

Nikolaus Piper argued in center-left Sueddeutsche Zeitung of Munich (12/8):  "The dollar has turned into a burden for the European and the German economy in particular....  But what can be done to resolve this problem?  The sobering answer is:  Not much.  The initial point for this imbalance is U.S. foreign trade. The state budget in Washington is highly deficitary and many Americans reduced their savings to maintain their consumption level, which, on the one hand, is a benefit for global trade, but, on the other hand, has led the U.S. to consume six percent more than it produces.  Over the past few years, Chinese, Japanese and other Asian central banks financed this difference by buying U.S. treasuries.  But now they want to be on the safe side by buying euro bonds, a decisive factor for the increase in the euro....  The ECB should not try to revise this by massively buying dollars…but the ECB should play with the instrument of intervention.  A Central Bank is well able to reduce speculation by terrifying speculators…. But irrespective of this, the German economy has to adjust to a strong euro, even if this is very uncomfortable.  A consolation is that the situation would be even worse if we still had the D-mark.  Thanks to the euro, the biggest part of German foreign trade is protected from currency fluctuations."

 

"To Wait And See Is Not Enough"

 

Martin Wolf judged business-oriented Financial Times Deutschland of Hamburg (12/8):  "The growing deficit in the U.S. balance of payments is turning into a real danger for the global economy.  But almost all politicians are shying away from taking action in this situation. This is understandable, but a grave mistake....  But two people are always necessary to tango, and this is also the case in view of enormous deficits and surplusses.  It is nonsensical to blame only the Americans.  It would be more reasonable to say that the Americans promote the behavior of the rest of the world, since they are able to take up more money in their own currency than any other country in the world.  Since other countries save more than they invest, the U.S. must pursue finance and monetary policies that sees to it that deficits develop in the country which resemble the balance of payments....  But even if the U.S. does the best under the given circumstances, the future development harbors great dangers....  But not only the U.S., but the entire world, is affected by these dangers.  For the world the task is to decouple from the continuous rise in U.S. debt, and the earlier the better.  But the decision-makers have not yet done this.  Europeans may moan but Americans are happy about the financial assistance from other countries.  The Asians seems to be happy about subsidizing their exports to the United States.  The result is, to quote former Treasury Secretary Lawrence Summers, a 'balance of financial terror' in which all nations prefer the status quo over any kind of change.  The balance, however, is unstable, and obviously, the situation is getting worse.  The world needs a credible plan to get out of this U.S. debt trap."

 

"Under Pressure"

 

Claus Tigges argued in center-right Frankfurter Allgemeine (11/25):  "The confidence in the dollar is damaged....  It is true that the actors on the international finance markets are not fully turning away from the U.S. currency, but their rating of the dollar is lower than it was a few months ago.  The distortions in the currency structure have not come out of the blue.  They are partly based on disappointing growth figures from the United States and on the concern that the high price of oil could strangle the dynamism of the biggest economy on earth.  That is why many analysts do not share Fed chief Greenspan's optimism that the economic climate has blurred only for a moment and that the GNP is already back on a sound path of growth....  But the Europeans are right with their appeal to Washington to push more vigorously for a consolidation of [Federal] finances, since the high U.S. budget deficit harbors a real danger for global economic development.  It is not only tying up private capital that could be used better elsewhere.  The comprehensive borrowing of the state is also threatening to push up interest rates, not only in America but also in the rest of the word."

 

"Diplomatic Masterpiece" 

 

Lucas Zeise judged in business-oriented Financial Times Deutschland of Hamburg (11/23):  "[During the G-20] summit, the Americans wanted a reduction of the debt of their protectorate in Iraq and thus a reduction of the costs of the Iraq war.  They achieved this goal.  The euro-Europeans, this time under the competent leadership of Germans, wanted the Americans to recognize the decline of the dollar as an American problem.  This goal was also achieved.  Fed Chairman Alan Greenspan, an honest soul, has recognized the high U.S. indebtedness abroad, which is the consequence of accumulated deficits in the balance of payments, as a reason for the weakness of the dollar.  But he also pointed to the consequence for the United States and also made clear that he does not think too much of interventions to back the dollar.  Thus the European side got two things as a result of this conference:  first, that something awful is going to happen:  the dollar will continue to fall.  America will tolerate the fall of its own currency and is even willing to accept the consequences in the form of rising interest rates.  Second, the responsible governments and its central bank ECB will not be bothered with demands to stimulate a stagnating economy.  The governments are likely to be bothered with such demand from the domestic side anyway, once the strong euro has totally strangled the miserable upswing."

 

"In The Grip Of The Dollar"

 

Center-right Frankfurter Allgemeine judged (11/22):  "The final [G-20] communiqué only indirectly addressed the situation on the foreign exchange markets by enumerating the risks of tough foreign trade imbalances.  And in the second part, it distributed the tasks as it did at similar conferences before:  the Americans must reduce their state debt, the Europeans break up their rigid markets, and the Asians create flexible exchange rates.  The markets have developed a fine feeling for when statements of politicians must be taken seriously and when they can be ignored.  For them it is not important whether the German chancellor criticizes alliance partners.  Foreign exchange traders are not interested in what Gerhard Schroeder wants but what is going to happen in the U.S.  As long as the U.S government only announces that it plans to consolidate the budget but acts differently, the weakness of the dollar will continue."

 

"The Chancellor's Philippic"

 

Ulf Sommer said in business-oriented Handelsblatt of Duesseldorf (11/23):  "The chancellor is right when he calls up George W. Bush to make savings and to take action against the decline of the dollar, for it is the Americans who are responsible for the strong euro, and the implications of the shocking U.S. debt for the rest of the world are not interesting him.  But to embarrass the recently re-elected U.S. president in such a way in front of an international audience is neither diplomatic nor wise.  This is not conducive for hopes for a gentler tone in German-American relations.  And what is even worse, the rise of the dollar will not be stopped....  Only joint efforts can stop the decline of the dollar.  Either the large central banks intervene by buying dollars, but the United States is not interested in it.  The only thing that remains is Treasury Secretary Snow's proposal that America reduces its deficit and Europe removes obstacles on the path to more growth.  Schroeder should concentrate on such things."

 

"G-20 Meeting Has No Effects"

 

Sebastian Wolff noted in left-of-center Berliner Zeitung (11/22):  "It sounds good to announce an agreement for permanent economic growth, but it really does not have any substance.  What is the use of the boastful U.S. announcement to halve the budget deficit if no one can demand to keep the promise?   U.S. Secretary Snow was clever enough not to announce any substantial moves, but only emphasized that the U.S. continues to pursue a policy that promotes growth.  He believes that more growth means more tax revenues, which can pay off the debts.  The only problem is that economic growth in the first four years under Bush was accomplished mainly by higher expenditures and tax cuts--which have then caused the high deficit.  If the U.S. continues its current policy to promote growth, expenditures will remain high and taxes will be low.  As a result, the deficit will not be reduced in the short run.  The dollar will further decline--and all G-20 nations will suffer from it, apart from the U.S."

 

"Distracting From The Dollar"

 

Carsten Broenstrup observed in centrist Der Tagesspiegel of Berlin (11/22):  "Europeans lacked diplomatic talent to convince Americans of the seriousness of the situation.  With simultaneously rising budget and trade deficits, the U.S. could exert so much pressure on the dollar that it ends in a global recession.  No on is interested in that.  Americans must understand that there is no alternative to cutting expenditures.  They face painful health-care reforms as well, and are also threatened with an ageing society.  When Europeans were confronted with these challenges years ago, Americans successfully pushed them to make changes.  Now, as Americans would have to take action, they managed to distract attention from the issue.  Europeans failed to boost their economic prospects for 2005.  They should have made clear to Americans that their deficit policy only works because Europeans invest money in America every day, and that a further decline of the dollar would destroy the success of their economic reforms.  Europeans must be more self-confident if they want the next G-20 meeting to be more successful."

 

ITALY:  "Snow To EU:  The Super Euro Is Your Fault"

 

Riccardo Sorrentini noted in leading business-oriented Il Sole-24 Ore (11/18):  “[U.S. Treasury Secretary Snow] was provoked by European ministers who asked him to apply the very publicized policy of the strong dollar....  The U.S. secretary, who was speaking at the Royal Institute of International Affairs of London, clearly stated:  the United States has done its part, now it’s the Europeans’ turn.  The American foreign deficit is, Snow asserted 'a shared responsibility.'  Another way of saying that the U.S. has until now spurred world growth through their imports and now partners must do some of it on their own.  However, the American strategy is based on three pillars, not just two:  the U.S. will increase its savings, Europe will increase its investments and China must make its exchange rate policy more flexible.”

 

LATVIA:  "Billions And Trillions"

 

Peteris Strautins wrote in centrist Diena (11/26):  "The U.S. has the world's largest economy and strongest army, but if the U.S. threatens the world at all right now, then it is because of its weakness, not its strength.  Exploitation of others is usually the privilege of the strong, but it is also possible to exploit others from a position of weakness.  The U.S. at this time resembles a child who is unable to deal with money in any sensible way....  The U.S. owes 3.3 trillion dollars to the rest of the world, and that sum is continuing to increase very rapidly....  The central banks of Asia at this time have accumulated around 2.4 trillion dollars in their foreign currency reserves, and they are trying to uphold a high dollar exchange rate to serve the interests of their exporters.   Now the banks are facing a horrible dilemma.   It is both risky and not very profitable to hold on to huge sums of dollars, but a rapid sale of dollars would mean a further collapse of the currency's value....  They are digging a deeper and deeper hole for themselves....  The current accounts deficit is covered primarily by the aforementioned and unlucky central banks of Asia.   They may eventually decide that the game is lost, and better a terrible end than a process that is endlessly terrible....  This happy situation may not be eternal, however, because the euro is increasingly threatening the throne upon which the dollar perches....  The share of the euro in official reserves will obviously continue to increase, and it may gradually push the dollar out of other international currency functions....  The risks that are associated with a rapid decline in the value of the dollar, however, do not necessarily mean that the world would gain nothing from a gradual and moderate decline in value.   That would help in destroying the aforementioned root of all of this evil--the current accounts deficit which exists in the U.S."

 

NORWAY:  "'Brutal Fall Of Dollar' Creates Unrest In Europe"

 

Foreign news editor Nils Morten Udgaard commented in the newspaper-of-record Aftenposten (11/19):  "The United States has held the economic life of other countries up with its enormous hunger for imports and a hunger financed by other countries purchasing dollars and thus covering the U.S. deficits--in return for a good interest rate in a secure currency....  Now the faith in this is undermined....  The question in the end remains how big the understanding, the cooperation and the trust is between the United States and Europe.  The dollar will continue to fall, according to the experts, but if it continues to 'fall like a rock,' the stock market could end up being affected--if the United States increases its interest rates significantly to support its 'greenback,' the dollar.  A global backlash is lurking in the near future.  The message from the finance ministers in the euro-countries is that the United States has to reduce its deficits, while the U.S. answer is that the EU needs to increase its weak economic development--with a higher rate of spending at home--and not by making themselves too dependent on the export markets in the United States and Asia."

 

MIDDLE EAST

 

SAUDI ARABIA:  "Managing The Dollar's Fall"

 

The pro-government, English-language Saudi Gazette noted (11/29):  "The decline of the value of the U.S. dollar is a widely discussed matter, which is hardly surprising given oil prices are still denominated in dollars and many countries have their currencies directly linked to it.  The dollar's fall is linked to America's yawning current account deficit, which is running at a staggering annualized rate of $665 billion or nearly 6 per cent of gross domestic product....  There is also a massive government deficit....  The result has been a chorus of disapproval from America's major trading partners....  The Japanese have apparently threatened to intervene in foreign exchange markets and Chinese officials have argued that global imbalances are made in America.  Critics argue Americans do not save enough and are relying on the rest of the world to finance a U.S. consumer binge....  America presently absorbs about 80 percent of the world's surplus savings....  This is a dangerous arrangement because when foreign investors demand better terms for financing America's spending spree and savings shortfall the dollar will collapse, interest rates will soar and the stock market will plunge.  In such a crisis, a U.S. recession would be a near certainty.  And the rest of an America-centric world would follow."

 

UAE:  "Flagging Dollar"

 

The English-language expatriate-oriented Gulf Today stated (12/8):  "This is not the time for the blame game. There should be concerted efforts to stop the slide of the American dollar and ensure economic equilibrium. The brutal drop in the dollar's value against the euro is symptomatic of the ills of the US economy....  The EU finance ministers...suspect Washington is allowing the dollar to be battered to keep the euro high for economic reasons....  Brutal it continues to be because of the free fall of the dollar due to the benign neglect by the US. The EU ministers are angry that Washington is doing precious little to rein in record current account and budget deficits....  As there is no credible sign that America's twin deficits are getting narrower, the dollar's weakening is likely to continue....  In the short-term, the U.S. might gain some advantage from a weak dollar. It could help fuel an export boom and make it easier to fund the deficits. But it would remain a patchwork attempt to repair the deep damage. It could even be a dangerous course to follow. As the dollar is still the mighty currency in world trade, all countries should work in concert to manage the exchange rates carefully and follow prudent economic policies. There is no room for the blame game."

 

EAST ASIA

 

CHINA:  "Any Currency System Must Safeguard Economy"

 

Zhi Ming commented in the official English-language China Daily (12/8):  “The U.S. Treasury Department report on the world economy and currency management admitted China does not manipulate its currency value to its trade advantage....  The US clearance of China's 'manipulation' of the renminbi's value helps blow away the cloud of accusations of China's monetary policy from U.S. industrial groups....  As the world economy becomes increasingly globalized, the U.S. and China have seen their economies being interwoven at an unprecedented pace. It is understandable that Washington is urging China to improve the renminbi's U.S. dollar peg regime to solve its domestic economic woes, namely trade deficit and unemployment, for which U.S. industrial lobbyists have been blaming China's undervalued currency....  Domestic realities must be taken into consideration before major changes are made. Fast and steady economic growth is the paramount precondition for monetary reforms. The fragile financial system, which is under a substantial reshuffle, may need to become more sound to embrace the impact of an abrupt currency revaluation.  In this sense, while heeding the U.S. call to revalue its currency, China deserves understanding from the U.S. President Hu Jintao held talks on this issue with US president George W. Bush in Chile last month. Their exchange of views should help untie this economic Gordian Knot. More exchanges between the leaders and experts of the two countries are imperative to hammer out a solution that is acceptable to both and, above all, will not harm China's economic health, which also has a growing impact on the world economy.”

 

"Who Forced RMB To Appreciate”

 

Qian Weizeng commented in official China Radio International-sponsored World News Journal (Shijie Xinwenbao) (12/6):  "The Western media have again begun to put pressure on China to urge the RMB to appreciate....  Economists think that the RMB is facing financial and political pressure.  The Chinese government firmly said that it would not appreciate the RMB because of foreign pressure.  Experts point out that an unstable RMB will do harm to China’s economy and will do nothing good for the world economy.  RMB appreciation is far more than a simple economic issue, but rather a broad political issue.  Our stance is very clear.  Premier Wen Jiabao stated on November 28th at the ASEAN Plus Three summit that China would not reevaluate the RMB. ...The more RMB appreciation is stirred up in the international community, the more impossible that the RMB will appreciate. ...The calls for RMB appreciation remind people of ...the U.S. agreement with Japan in 1985 to appreciate the Japanese yen ...This became the main reason behind the Japanese economy’s later wobbles.  The Bush administration has increased its overseas debt.  To get out of this economic dilemma, making use of its superpower position and the U.S. dollar’s convenience as the currency of international trade, the U.S. is taking a ‘weak dollar’ policy.  The obvious goal is asking all countries including China to ‘foot the bill’ for the U.S. fiscal deficit, financial deficit and its luxurious consumption habits.”

 

"Peering Into The Dense Fog Of The Dollar Exchange Rate"

 

Official magazine Outlook Weekly (Liao Wang) noted (12/6):  “It is possible that the U.S. is engaging in a controlled depreciation of the U.S. dollar.  It is not possible that the U.S. would let it depreciate without control.  The U.S. economy is basically healthy, which is ultimately leading the U.S. dollar into a re-adjustment period.  There are two causes for the U.S. dollar depreciation: the large U.S. deficit ...and the U.S. government’s conniving in the weak dollar....  The U.S. depreciation first blew up the Euro....  Second, it is harming developing countries’ economic interests. ...Third, it has increased the confusion and speculation in international financial markets....  Fourth, the rate of depreciation of the U.S. dollar to the Japanese yen is not as fast as it is to the Euro, and thus it is having very little influence on the Japanese yen market.”

 

"U.S. Dollar Playing With Fire But Not Burning"

 

Official magazine Outlook Weekly (Liao Wang) reported (12/6):  “People look at the U.S. dollar’s direction mostly from the perspective of U.S. economic structural issues, that is to say its trade and financial deficits....  The U.S. government is taking advantage of the trade deficit to let the U.S. dollar drop; this is a tactical measure that manifests the U.S. hegemony....  The U.S.’ double deficit is on the one hand due to a periodic downturn in the economic cycle, and on the other hand is due to the increase in costs of the War on Terror....  The U.S.’ current currency policy is playing with fire under control, but that it won’t burn itself up....  When the U.S. faces economic problems, it lets the world shoulder its difficulties.  If the U.S. dollar continues to depreciate...then the U.S. will stop ‘playing with fire'....  Thus to predict that the U.S. economy will blow up or to consider this a crisis is too pessimistic.  The U.S. economy has problems, but not fatal ones.”

 

"The Fights Between The RMB And Dollar"

 

Official magazine Outlook Weekly (Liao Wang) stated (12/6):  “A series of factors have caused the U.S. exchange rate to change....  In recent years, Bush’s tax reductions and expansion of expenditures have caused more serious financial deficits....  The low interest-rate policy directly caused a downturn in the U.S. economy....  The re-elected Bush administration will certainly continue its deficit-spending policy.  An important factor is that the U.S. dollar’s exchange rate won’t improve for several years unless the U.S. currency policy moves in the direction of high interest rates....  From China’s perspective, if the RMB to dollar exchange rate won’t change, then the RMB general rate will also drop, causing the RMB to face greater pressure to appreciate.  Looking from a long term perspective, a change is necessary.”

 

CHINA (HONG KONG SAR):  "Weak U.S. Dollar Brings Benefits...And Risks"

 

The independent English-language South China Morning Post editorialized (12/6):  "If the past six weeks are anything to go by, a weakening U.S. dollar will bring surging liquidity to Hong Kong, and the higher equity and property values that come with it....  The prospects are not especially good for reversing the weakening dollar trend anytime soon.  Until and unless there is a radical shift in U.S. fiscal policy and a reduction in its trade balance, the question largely becomes one of managing the effects.  Heavy government borrowing from treasuries overseas is used to finance the deficits, but the worry is that the world will grow weary of bankrolling free-spending American ways.  If many of the holders of some U.S.$11 trillion in U.S.-dollar-denominated assets decide they would rather not be holding assets that are declining in value, the U.S. could be in trouble.  If Asian governments, some of the largest buyers of U.S. bonds, withdrew their support, America's cost of borrowing could go up.  In such a scenario, the greenback's luster as a preferred reserve currency might fade and no longer provide stability, and Hong Kong would then have to consider whether the peg had outlived its usefulness."

 

"Increased Political Pressure Might Cause U.S. Deficit To Be Reduced"

 

Independent Chinese-language Hong Kong Economic Journal commented (11/24):  "It is well known that the key to solving the problem of a weak U.S. dollar would be to reduce the U.S. deficit--both the financial and trade deficits....  It is worth mentioning some of the changes that have happened in the U.S. political arena recently, which might help the U.S. in reducing its trade and financial deficit....  After the election, Republicans became the absolute majority in the Congress, making it easier and smoother for Bush to implement his domestic and foreign policy.  But more and more heavy-weight Republicans realized that the consequence of ignoring the current deficit issue can be disastrous.  Bush's policies on taxes, fiscal expenditures and Social Security/Medicare may encounter much more Congressional opposition than expected."

 

"Appreciation Of Chinese Currency Not Necessarily Good For U.S. Economy"

 

pro-PRC Chinese-language Ta Kung Pao said (11/22):  "The exchange rate is purely an American domestic political dispute, which has evolved into an international issue.  Many Americans such as Mr. Greenspan himself have pointed out that appreciation of the renminbi (RMB) won't be able to save the U.S. manufacturing industry.  This is just a political show by the Bush government for its voters....  Undoubtedly, President Bush needs China's cooperation during his second term.  At this critical moment, any change in the exchange rate may hurt the U.S. more than it does on China.  In a long run, if the Chinese government pegs its RMB to the euro, it will be even worse for the U.S. economy."

 

"Devaluation Of Dollar Good For HK Economic Restructuring"

 

pro-PRC Chinese-language Ta Kung Pao remarked (11/19):  "Although the U.S. government insisted that it will continue to hold a strong dollar policy, because of the fact that dollar devaluation benefits U.S. economic recovery, it actually is happy to see the current trend and it is very unlikely it will do anything to stop it....  However, devaluation of the U.S. currency has been good news for Hong Kong under the current peg system.  The value of HK dollars has dropped 30 percent recently, tremendously helping to reduce the cost of products and increase Hong Kong's export and transshipment industry."

 

"Strong U.S. Dollar Is A Lie"

 

Independent Chinese-language Hong Kong Economic Times editorialized (11/18):  "It is believed that investors are selling the U.S. dollar because they have noticed that U.S. President Bush basically is not sincere in attempts to permanently solve trade and budget deficits.  Hence, the U.S. dollar has dropped drastically....  If the U.S. wants to its solve trade and budget deficits, the U.S. government must increase income and reduce expenditure and it must encourage the American people to reduce consumption.  But these moves will definitely put pressure on the economy and violate Bush's policies.  Hence, the emergency measure is to push the U.S. dollar down, to stimulate exports of U.S. goods and to reduce imports.  Thus, although Bush called for strong U.S. dollar in the past four years, he has, in fact, strictly enforced the weak U.S. dollar policy.  The policy will continue to be the same.  This will certainly be a great blow to other countries' exports and economy."

 

JAPAN:  "U.S. Must Move To Reduce Deficit"

 

Liberal Asahi editorialized (11/23):  "Although President Bush expressed his support for a strong dollar policy and vowed to reduce the U.S. fiscal deficit during his recent meeting with Prime Minister Koizumi, the U.S. dollar continues to fall.  The exchange market appears concerned about the president's leadership in reducing the twin deficits in the current account and the federal budget.  In addition to large tax cuts, the cost of the Iraq war is hitting the U.S. purse.  Although the nation continues to maintain its overwhelming military power, its economic strength appears to be on shaky ground.  The president clearly needs to review his tax cuts and present specific measures to reduce the fiscal deficit."

 

"Bush Needs To Present Concrete Deficit Reduction Measures"

 

Business-oriented Nihon Keizai contended (11/22):  "President Bush expressed his support for a strong dollar policy at his meeting with his Japanese counterpart.  We hope the president will present concrete measures on deficit reduction in his upcoming State of the Union Address because the growing fiscal deficit in the U.S. is largely responsible for the dollar's sharp fall.  Although the president has pledged to reduce the current deficit by half in the coming five years, he has not yet made any specific proposals.  We are deeply concerned because a further decline of the U.S. currency is likely to have a negative effect on the world economy in general."

 

MALAYSIA:  "Weak Dollar Becomes Real Challenge for Asian Economic Growth"

 

Chinese-language independent Kwong Wah Jit Poh editorialized (12/3):  "After the re-election of President Bush, Washington has quietly allowed the dollar to remain weak in order to reduce its huge federal deficit.   But Asian countries, including Malaysia, are now extremely worried that the continued downslide of the US dollar could trigger a new Asian financial crisis.  It looks like the new era of a devalued US currency is here to stay.   It is high time for developing countries such as Malaysia to take appropriate action to ward off the impact of a weak dollar on the economy....  Speculation of a possible revaluation of the Ringgit [Ringgit Malaysia] against the US dollar has already resulted in foreign hot money coming into the local stock market.   This is a worrisome for Malaysia as once the government announces a currency revaluation, short-term hot money would certainly withdraw from our stock market as it would have profited from the exchange rate.   This might cause the Malaysian economy to collapse if the government does not take enough precautions to prevent this from happening....  The U.S. remains Asian countries' largest export market.  Countries in the region have very close links with the U.S. through trade.  We do not want to see the US dollar get weaker each day.   A weak dollar has already drastically reduced the foreign reserves of many Asian countries.   This is the current dilemma facing Asian countries which we have yet to find a solution."  

 

PHILIPPINES:  "The Mystery Of Money In Tricky Global Trade"

 

JCM Romero 3rd wrote in the independent Manila Times (12/8):  "There is risky business of reducing the U.S. trade deficit with regional partners. Without prudence, the dollar can plunge in Europe but stay strong in Asia....  The Chinese government has determined that the US dollar is worth 8.28 yuan. That creates headshakes here even as the greenback is in a tailspin with a backdrop of economic gloom....  China and other Asian nations that have huge trade imbalances with Washington have reinvested their accumulated dollars in US Treasury bills and other forms of debt, effectively financing America’s growing national debt.  All those repatriated dollars have enabled the US to finance its debt while keeping interest rates at a historic low....  If the American trading partners in Asia stopped buying US debt, this could force interest rates to rise in US and consequently dampen economic growth. That whole high-wire debt-financing act is scary.  Some worry that a sharp decline in the dollar against all currencies could prompt foreign holders to start dumping dollars, creating a panic....  It is still unclear as to whether the dollar mystery could lead to disaster." 

 

THAILAND:  "What Does Asia Want From Its Big Brother?"

 

Pana Janviroj commented in the independent, English-language Nation (12/1):  “Asians tend not to be very straightforward.  They avoid precise questions and exact answers, even on matters of paramount importance--like money....  Yet there is much anxiety over the future of the global financial system, an anxiety that was aggravated by U.S. Federal Reserve Chairman Alan Greenspan’s recent statement....  Since that bombshell was dropped the U.S. dollar has slid against other currencies.  The war of words over exchange rates has resumed once again, and China’s leaders are understandingly frustrated with the international bashing they are receiving for their yuan exchange policy....  So Asia’s Big Brother has asked what Asia wants from the yuan.  How will Asia respond?...  The idea that the yuan could become another preferred international currency is not far-fetched.  There has been talk about Asia becoming a yuan--not a dollar--zone.  The foundations for such a change could already be found in the regional currency-stabilization pacts that some Asian countries have in place already, as well as the main idea behind Asia bonds--that Asian countries should keep their savings here and not in U.S. treasury bonds.  Most importantly, the countries within the region are trading more and more with one another, egged on by free-trade arrangements and strategic economic decisions by Asian governments with China in the driver’s seat....  All things considered, telling Beijing what should be done with the yuan is more difficult than it sounds--it is not always clear what is politically desirable or what is just not welcome.”

 

AFRICA

 

ETHIOPIA:  "Watch Out, The Dollar Is Falling!"

 

Eyob Tesfaye remarked in business-oriented weekly Addis Fortune (Internet version, 11/21):  "Anxious investors and currency speculators are now said to be very busy in closely monitoring the movement of the U.S. dollar....  A tumbling U.S. dollar and a widening budget deficit, caused by a profligate American government and its extravagant citizens, are perhaps closer to every economy in the world than most people would think....  Whatever happens to the value of the dollar, the trade balance, level of foreign exchange reserves, capital flows, growth rates, profits, share prices, as well as the inflation rates of all countries stretching from Taiwan to Tumbuktu are bound to be affected....  A tumbling dollar would also have some consequences on the wobbly Ethiopian economy....   The Birr exchange rate moves up and down with the U.S. dollar, even if it is not with the same magnitude and speed.  Undoubtedly, a fast deterioration of the dollar would make this country's imports more expensive.  The effect of a fast deteriorating dollar is reflected in the price of key import items....   A rising import bill, beyond a shadow of doubt, could lead to a foreign exchange reserve drawdown.  While it is too early to make a prediction about a major currency crash, it is, however, advisable to take the precautionary actions to mitigate the possible impact of a diving dollar.....  This does not mean everything about a sliding dollar is all bad.  Ethiopia's export products will become more competitive in European markets...while Ethiopian business should find it cheaper to buy American products."

 

WESTERN HEMISPHERE

 

CANADA:  "Canada, Rest Of World To Pay For U.S. Spending"

 

Economic writer David Crane commented in the liberal Toronto Star (12/3):  "Despite the lack of announcements during U.S. President George W. Bush's visit to Canada this week, it seems clear that the trade disputes over softwood lumber and Canadian beef will be settled in 2005....  But the big economic challenges for Canada, as the Bush administration moves into its second term next month, will have little to do with bilateral trade disputes and much more to do with pressing strategic challenges facing the United States.  These include: How the United States works its way out of its huge and unsustainable current account deficit and parallel growth in debt to the rest of the world....  What the United States does to address its large budget deficit, which is closely linked to its current account deficit....  Where the U.S. is headed on trade policy--and the risks of rising protectionism focused on China but aimed at others as well....  The U.S. Congress must also deal with three trade issues in 2005 - a renewal of fast-track negotiating authority so that the Doha Round negotiations of the World Trade Organization can continue, a reaffirmation of U.S. membership in the WTO itself, and approval of the Central American Free Trade Agreement.  All three will be subject to intense fighting between free traders and protectionists in the United States.  The United States has been living beyond its means for some time.  But its credit card is now approaching its upper limit.  Canadians, like others around the world, cannot help but be affected as Americans are forced to finally put their economic house in order.  Despite friendly words in Ottawa and Halifax this week, we should not expect any special consideration."

 

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