The Dollar in World Markets
According to a leading German banker, the U.S. dollar is "the most frequently discussed economic phenomenon of our times." He adds, "…the dollar's exchange rate is at present the most important price in the world economy…". Because the dollar acts as a world currency, ___(1)___. The central banks of many countries hold huge reserves of dollars, and over half of all world trade is priced in terms of dollars. Any shift in the dollar's exchange rate will benefit some and hurt others. Some people suggest, therefore, ____(2)___.
The dollar's exchange rate has been too volatile and unpredictable. Several years age the dollar was rapidly declining in value. This made it ___(3)___. The rise in the price of foreign goods made it possible for U.S. businesses to raise the price of competing foods produced here, thus worsening inflation. Foreigners who dealt in dollars or who held dollars as reserves were hurt. People in the United States who had borrowed foreign currencies found that they had to pay back more than they borrowed ___(4)___. The United States lost face in the eyes of the rest of the world.
The dollar went soaring upward, and the situation was reversed. United States exporters found it hard to sell abroad because foreigners would have to pay more for U.S. dollars. People in the United States now bought the relatively cheaper foreign goods, and U.S. manufacturers complained that they could not compete. Job losses were often blamed on the "overvalued" dollar. Poor nations ___(5)___ found it difficult to repay both the loans and the interest because they had to use more and more of their own currencies to obtain dollars. The solution to this problem is to end the system of floating exchange rates and return to fixed rates. We might even return to the gold standard.
Fixed exchange rates did not work in the past. Currency values should be determined by market conditions. A drop i