Decline in U.S. dollar

Press, 4 March 1978, Page 14

Decline in U.S. dollar

The continued decline in the value of the American dollar appears to be upsetting everyone except the Americans. Their attitude has been described as one of benign neglect and no recent intervention has been forthcoming. The decline is clearly an instrument of American policv designed to overcome the deficit in the American balance of payments, which last year amounted to about $3O billion.

The United States would probably like to achieve in other ways the results .which the effective devaluation of the dollar is designed to achieve Its spokesmen have so far failed to persuade the countries with strong currencies — notably Japan and West Germanv — to reflate their economies so that their peonies buy more imports which the United States is onlv too willing to supply Janan. after much coaxing and not a little threatening, eventually agreed to a growth in its economy of 7 per cent, which if ft did occur, might lower the Jananese surplus in its balance of payments.

West Germany has been less receptive. practically telling the Americans that they will have none of it and has set a modest target of 3 5 per cent growth in G.N.P. The United States has heard much of that before and will accept that there has been some progress when it sees the effects. The United States actuallv met its own growth target of 4 9 per cent last year and so considers that it was doing its bit to get the world economv moving again. In the face of West German and Japanese resistance to internal reflation, the American dollar has been allowed to decline. making American exports cheaper than some West German and Japanese goods. The United States should sell more abroad.

The decline of the American dollar

can be seen if it is compared with the New Zealand dollar. At the end of February, 1977, SNZI was worth 5U50.9496; at the end of February of 1978 SNZI was worth 5U51.0240 — a drop of 7 per cent in the value of the SUS. The decline is even more marked when the American dollar is compared with the yen and the mark.

New Zealand exporters whose products compete with American exports will quickly fee) the effects of the decline in the value of the American dollar There should be some lowering of price in American imports into New Zealand. Because the value of the New Zealand dollar is worked out from a basket of currencies which includes the American dollar, the New Zealand dollar is likely to fall slightly in value But these effects on New Zealand, and the effects on other nations of the fall in value of the American dollar, are much to be preferred to the other possible American response — trade protection, which Congress has been considering. The lessening of Congressional pressures for trade protection will be one main effect: a second is the attempt by the White House to make Congress accept the President’s energy plan. The President has a point. The huge import bill for oil contributes greatly to the American deficit. The greatest externa) pressure on the United States will come from the oil States because the price of oil is fixed at 5U512.70 a 139-litre barrel and as the dollar slides the oil States see themselves losing millions of dollars daily. A response by the oil States either to calculate the price of oil in another currency or to raise the price of oil would throw the world economic system into even greater chaos. The sooner the American economy recovers, the better for the rest of the world.