Banana Dollar — Part 4
The dollar continues to decline. Chinese exporters are increasingly quoting prices in renminbi (China’s currency, also known as the yuan, CNY). The yuan has steadily appreciated from $1=CNY 8.28 in July 2005 to CNY 7.01 in late March 2008, and is projected to appreciate further to CNY 6.30-6.40 by December 2008.
The Financial Times of March 28, 2008, reported that the vast majority of 700,000 Chinese suppliers to international companies no longer use U.S. dollars to settle non-U.S. transactions. Chinese exporters are also encouraging clients to pay in euros instead of dollars.
Since January 1, 2008, many foreign currencies, some previously weak, have markedly appreciated against the dollar: Japan, Switzerland, Chile, Colombia, and the Czech and Slovak republics more than 10 percent; Poland, 9.5 percent; Israel, 9 percent; and Hungary, in the midst of a budget crisis, 6.2 percent.
In the same issue of the Financial Times, Professor Martin Feldstein of Harvard, former chairman of the Council of Economic Advisers under President Reagan and former chairman of the National Bureau of Economic Research, writes that "the value of the dollar is not weak but is actually very strong." He goes on to say that "it takes a very large fall of the dollar to shrink the net [trade] deficit." He credits the weaker dollar for an increase in exports and a reduction of 11 percent in the trade deficit from its 2006 peak. (The current account deficit is running at an annualized rate of about $800 billion, due largely to high-priced oil imports.) In his analysis the dollar should continue to decline to reduce the large trade deficit. Given his words, that it takes a very large fall of the dollar to shrink the trade deficit, one can infer that he is willing to see another 30 percent or greater decline in the U.S. currency.
As I mentioned in "Banana Dollar" (January 21, 2008), the day will soon come when renminbi and Russian rubles will become hard currencies and the U.S. dollar a softer currency. The consequences for U.S. global status and power will be enormous and irreversible for years to come.