US dollar dominance of world economy

Other Names:
Overvalued dollar
Weakness of dollar
The rise in the cost of the dollar with respect to other currencies - about 70% since 1980 - resulted in American farmers and businessmen being unable to compete in overseas markets; domestic American industries being wiped out because foreign good cost much less than domestic products; developing countries' debts rising every time the dollar goes up; and the USA trade deficit reaching $150 billion in 1985, thus making the USA a debtor nation for the first time since World War I.
The world economy is dominated by the USA, whose dollar has superseded the established gold standard for world economy. The danger in allowing one nation's economy to support the equilibrium of the global economy is twofold: fluctuating trust in the USA' economy leads to world-wide monetary instability; and national pride in the dollar has become unduly inflated. The risk of renewed weakness of the dollar in the 1990s with rapid depreciation could push up inflation in the USA, raise domestic interest rates, and -if international investors become reluctant to hold dollar assets at prevailing yields - cause instability in financial markets.
Related Problems:
Speculation on money markets
Problem Type:
D: Detailed problems
Date of last update
01.01.2000 – 00:00 CET