Q & A : What Effect the Weak Dollar Has on Americans
The dollar’s recent fall against the Japanese yen could affect everything from what you pay for goods to what you earn at work. Here are some answers to questions about the dollar’s decline.
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Q So what does all this mean to me, the U.S. consumer?
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A As the dollar falls, it means you have to bring more money with you when you travel overseas.
It also means you might see prices of foreign goods go up, if manufacturers are worried about falling profits. Already this year, Japanese car prices have risen far more quickly than those of Detroit’s auto makers.
But there is a benefit from a falling dollar, if you own overseas stocks and bonds. When foreign currencies rise, your overseas investments translate into more dollars. And if you work for a company with foreign operations, the company will generate more profits from abroad, fueling profit-sharing plans and even pay raises for workers at home.
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Q How long has the dollar been falling?
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A The dollar has been in a general decline since early 1985, when it was at the 260-yen level. At that time, the major industrial nations agreed to lower the value of the dollar to help correct the U.S. trade deficit, especially with Japan. A weaker dollar makes American goods cheaper and more competitive on world markets, and the move was supposed to help cut the trade gap.
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Q So the dollar is dropping solely because of the trade conflict?
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A Trade is just one factor. The dollar also fell because the U.S. economy weakened more quickly in the late-1980s recession than other countries’ did, and interest rates here fell more steeply and stayed lower than our trading partners’ rates.
More recently, U.S. stocks and bonds have been declining, scaring off foreign investors. As they liquidate American stocks and bonds, they will also sell off the proceeds--dollars--in order to buy other currencies to invest in other countries. Big institutional investors, so-called hedge funds, have been known to be selling the dollar.
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Q Is the U.S. government comfortable with how the markets are reacting and the dollar’s recent fall?
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A Apparently not. On Friday, as the dollar dropped toward that postwar low of 100.40 yen, the Federal Reserve Board stepped in and bought dollars for German marks and Japanese yen. It made its presence known, and the currency market reacted by pushing the battered dollar back up.
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Q Why did the government intervene?
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A Treasury Secretary Lloyd Bentsen said the United States wants to promote currency stability.
Economists say Washington might be fearful that a further fall in the dollar would scare off foreign investors and hurt the stock and bond markets even more.
