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The following article was published in our article directory on December 22, 2010.
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Why the Dollar Select Depreciate

Article Category: Business

Author Name: xia zihui

Only from the perspective of the United States, the global current account rebalancing the objective requirements: either the U.S. savings rate, consumption rate decreased; or depreciation of the dollar.

In 2007, the international financial crisis, global current account imbalances in both absolute size and relative size of the peak levels are reached; 2008-2009, shrinking global demand has been made to improve the global current account imbalances; 2010, the first economic recovery in emerging economies Since the global current account imbalances signs of renewed expansion.

In theory, nothing more than global current account imbalances depends on two factors: First, the savings rate out of balance. The basic macroeconomic identity: Savings - Investment = current account surplus, so emerging market economies, a savings surplus, the surplus of experience; while the U.S. savings gap exists, on the contrary the experience deficit; the second is the exchange rate imbalance. Exchange rate deviation from the equilibrium value, whether it is undervalued or overvalued, the natural result is imbalance between export competitiveness, resulting in current account imbalances.

Therefore, only from the perspective of the United States, the global current account rebalancing the objective requirements: either the U.S. savings rate, consumption rate decreased; or depreciation of the dollar.

U.S. savings rate is still facing great uncertainty, the U.S. has been trying to avoid an internal initiative to adjust the pressure, so by compressing the "savings - investment" gap re-balancing act has been consciously suppressed.

As of 2009, the U.S. net national savings is to -3274 million U.S. dollars, GDP accounted for -2.3% -0.4% compared with 2008 has decreased substantially, including families, businesses and Government departments are the scale of 6603 net savings million, 284 200 000 000, -12 719 billion. By contrast, we find that changes in U.S. net savings rate is the biggest driver of changes in net government savings, family and corporate savings are relatively stable. From the current situation to see the next few years, the U.S. net national savings rate from negative to positive could still face greater uncertainty, the most important reason is: First, the massive U.S. government stimulus policies and large-scale Currency policy is still being implemented and other short term actions have not yet seen substantial withdrawal, the Government's level of savings will not be changed greatly. Second is not fully sustainable because the U.S. economic recovery, the residents of the uncertainty of future income expectations, making the current residents of precautionary saving has improved, however, if fully established trend of economic recovery, the unemployment rate decreased significantly, U.S. savings rate so residents can maintain the current upward trend is still facing some uncertainty. Third, the U.S. government has avoided internal restructuring in order to promote increased savings rate, because the internal adjustment of the adjustment will bring the pattern of interests.

Therefore, the observed level of future U.S. savings rate, two key indicators, one can be substantial when the United States withdraw from the current fiscal and monetary stimulus, and began to repair the financial; the other is evident when the U.S. unemployment rate improved When can improve capacity utilization, long-term interest rates when it can be gradually out of the ultra-low interest rates. Both of these trends has not yet appeared in until probably should not expect the U.S. economy by the adjustment to achieve the savings rate, current account rebalancing, on the contrary, the dollar will be adjusted accordingly to take on more pressure.

From the perspective of the exchange rate to correct current account imbalances, which means the country as the world's largest U.S. trade deficit through exchange rate depreciation to achieve balance, which is actually transferred to other countries to adjust the behavior of the pressure, especially considering the crisis in the United States itself savings rate is too low, the financial system as a result of excessive speculation, then the behavior of this shift is even more striking pressure, and China, Japan and Germany, the major surplus countries may be under such pressure a certain exchange rate pressure.

Therefore, due to exchange rate adjustments will take more pressure to enhance the sustainability of U.S. current account, the dollar exchange rate will experience a trend of devaluation. But at the same time, the U.S. dollar remains the world's dominant international reserve currency, the dollar's sharp depreciation and volatility in global financial markets will cause instability and excessive flow of funds frequently, so if international policy coordination mechanisms play a role, then you can expect the dollar's depreciation will be the asymptotic behavior of the incremental process of adjustment.

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