Depreciating Dollar: Economic Effects and Policy Response [July 17, 2008]   [open pdf - 177KB]

"[…] From 2002 to the present, the dollar, for the most part, steadily depreciated, falling about 26%. From early 2002 through 2006 the dollar's fall was moderately paced at about 3.0% to 4.0% annually. Recently, however, the slide has accelerated, falling nearly 10% between June 2007 and June 2008. The weakening of the dollar for over five years has raised concern about the health of the U.S. economy. Addressing that concern, this report examines the likely reasons for the dollar's fall, the effects the depreciating currency could have on the economy, and possible policy responses that could be considered to attempt to alter the dollar's path if needed. Since the break-up of the Bretton Woods international monetary system in 1973, the real exchange rate of the dollar has been largely determined by the market -- the supply and demand for dollars in global foreign exchange markets. Dollars are demanded by foreigners to buy dollar denominated goods and assets. (Assets include bank accounts, stocks, bonds, and real property.) Dollars are supplied to the foreign exchange markets by Americans in exchange for foreign currencies to buy foreign currency denominated goods and assets. In most circumstances, however, there is a strong expectation that asset market transactions will tend to be dominant and ultimately dictate the exchange rate's actual direction of movement. This dominance is the result of asset market transactions occurring on a scale and at a speed that greatly exceeds what occurs with goods market transactions."

Report Number:
CRS Report for Congress, RL34582
Public Domain
Retrieved From:
United States. Department of State, Foreign Press Centers, Bureau of Public Affairs: http://www.fpc.state.gov/
Media Type:
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