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. . .”_____ (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. _____ (2) _____.
The dollar’s exchange rate has been too volatile and unpredictable. Several years ago the dollar was rapidly declining in value. _____ (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 because the declining dollar would buy fewer units of the foreign money. _____ (4) _____.
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 that had borrowed dollars 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. _____ (5) _____. 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 in the exchange value of a nation’s currency means that it is importing too much, that it is too inefficient to compete in world markets, that it is permitting a high rate of inflation which makes its goods too expensive, that it is going too deeply in debt, or that others have lost confidence in the nation’s stability. A nation should bring its exchange rate back up by addressing these problems, not by interfering with the money market.
A. The solution to this problem is to end the system of floating exchange rates and return to fixed rates.
B. Some people suggest therefore, that the dollar’s value should be more tightly controlled
C. The United States lost face in the eyes of the rest of the world.
D. Because the dollar acts as a world currency, its value affects many nations.
E. This made it difficult for Americans to purchase foreign goods and services.
F. Those who borrowed a lot of money from a bank suffered most.
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