The dollar's fall is shaking up the global economic and political balance, but most of the pain is being borne by countries other than the US. The dollar's decline has accelerated in recent days as it slumped to new lows against the euro and a five-year nadir against the yen.
Economists are agreed that the world must get used to living with a weaker dollar and that the well- known maxime of John Connolly, US treasury secretary under president Richard Nixon, -- "The dollar is our currency, but your problem" -- still applies.
The dollar's current weakness stems from the US' "twin deficits" due to overspending by the federal government and overspending by consumers on foreign goods, especially from China.
The overspending, which has until now been largely financed directly or indirectly by Asian central banks, has stimulated US economic growth. However, many economists consider such a policy to be ultimately untenable.
As a result, the US has an interest in letting the dollar swoon despite the well-worn, official "strong dollar" policy, to which the currency markets now pay little heed. A weaker dollar makes US exports more attractive abroad and imports less attractive in the US, which at the macroeconomic level helps reduce the US current account deficit with the rest the world.
The Bush administration has preferred the option of letting the dollar fall, a policy which analysts have dubbed "benign neglect," rather than trade protectionism or forcing the economy to slow, said HSBC-CCF strategist Paul Douaihy.
But the dollar is so dominant in global trade and financial transactions that this policy has immediate consequences elsewhere.
BNP Parisbas chief economist Philippe d'Arvisenet said that until now the dollar's decline has mainly concerned the eurozone because many Asian countries have arrangements to limit the impact on their currencies.
China, for example, has had the yuan pegged to the dollar since 1994 while other countries such as Japan have a policy of intervening in the currency markets by buying dollars in order to halt the appreciation of their currencies.
The so-called "dollar zone" of economies whose currencies are tied to the dollar, which includes the US, China, and most emerging market Asian and Latin American countries, are benefitting from the dollar's weakness, or at least have escaped its inconveniences. How-ever, that increases the impact of the weak dollar on the eurozone.
"In the near term I do not see anything that can stop the euro appreciation, and there is no doubt that Europe will suffer from that", said Bank of America economist Lorenzo Codongo from London.
Douaihy said there was no domestic stimulus to compensate for the impact of the dollar's weakness and the rise of the euro would increasingly sap eurozone growth, and therefore, employment. As for Japan, it is already teetering on recession, he said.
US Secretary of the Treasury John Snow lectured Europeans during a tour of the continent earlier this month to adopt growth-stimulating reforms rather than complain about the weakness of the dollar.
But Codongo said there was little appetite for probably painful reforms right now in Europe.
"Most countries have elections next year looming so I don't think there is a significant chance for structural reforms," he said.
However, in the medium term relief could be on the way with most analysts expecting Asian countries to allow their currencies to gain in value against the dollar.
China is likely to gradually adopt a floating exchange rate in five years once its banking system is reformed, Codongo said.
The government is aiming to recruit 1,096 foreign English teachers and teaching assistants this year, the Ministry of Education said yesterday. The foreign teachers would work closely with elementary and junior-high instructors to create and teach courses, ministry official Tsai Yi-ching (蔡宜靜) said. Together, they would create an immersive language environment, helping to motivate students while enhancing the skills of local teachers, she said. The ministry has since 2021 been recruiting foreign teachers through the Taiwan Foreign English Teacher Program, which offers placement, salary, housing and other benefits to eligible foreign teachers. Two centers serving northern and southern Taiwan assist in recruiting and training
WIDE NET: Health officials said they are considering all possibilities, such as bongkrekic acid, while the city mayor said they have not ruled out the possibility of a malicious act of poisoning Two people who dined at a restaurant in Taipei’s Far Eastern Department Store Xinyi A13 last week have died, while four are in intensive care, the Taipei Department of Health said yesterday. All of the outlets of Malaysian vegetarian restaurant franchise Polam Kopitiam have been ordered to close pending an investigation after 11 people became ill due to suspected food poisoning, city officials told a news conference in Taipei. The first fatality, a 39-year-old man who ate at the restaurant on Friday last week, died of kidney failure two days later at the city’s Mackay Memorial Hospital. A 66-year-old man who dined
EYE ON STRAIT: The US spending bill ‘doubles security cooperation funding for Taiwan,’ while also seeking to counter the influence of China US President Joe Biden on Saturday signed into law a US$1.2 trillion spending package that includes US$300 million in foreign military financing to Taiwan, as well as funding for Taipei-Washington cooperative projects. The US Congress early on Saturday overwhelmingly passed the Further Consolidated Appropriations Act 2024 to avoid a partial shutdown and fund the government through September for a fiscal year that began six months ago. Under the package, the Defense Appropriations Act would provide a US$27 billion increase from the previous fiscal year to fund “critical national defense efforts, including countering the PRC [People’s Republic of China],” according to a summary
‘CARRIER KILLERS’: The Tuo Chiang-class corvettes’ stealth capability means they have a radar cross-section as small as the size of a fishing boat, an analyst said President Tsai Ing-wen (蔡英文) yesterday presided over a ceremony at Yilan County’s Suao Harbor (蘇澳港), where the navy took delivery of two indigenous Tuo Chiang-class corvettes. The corvettes, An Chiang (安江) and Wan Chiang (萬江), along with the introduction of the coast guard’s third and fourth 4,000-tonne cutters earlier this month, are a testament to Taiwan’s shipbuilding capability and signify the nation’s resolve to defend democracy and freedom, Tsai said. The vessels are also the last two of six Tuo Chiang-class corvettes ordered from Lungteh Shipbuilding Co (龍德造船) by the navy, Tsai said. The first Tuo Chiang-class vessel delivered was Ta Chiang (塔江)