Plan to
make the dollar a weak currency: Does Trump want to devalue the US currency?
The US
dollar has been losing value.
The US
currency has been losing value since Donald Trump returned to the White House
in January this year due to the ongoing trade war and diplomatic tensions.
This week,
the dollar has reached its lowest level in three years against major currencies
such as the euro, Japanese yen and British pound. This is because US industrial
activity slowed down for the third consecutive month in May.
And this is
important not only for Americans or countries whose economies are measured in
the US dollar, but also for the wider global economy.
Some
investment banks such as Morgan Stanley, JPMorgan and Goldman Sachs believe
that the dollar could further decline on the potential weakness of the world's
largest economy as tensions escalate due to the trade war initiated by Trump.
Gabriela
Siller, director of economic analysis at Mexican financial group Banco Base,
told the BBC that “Trump’s protectionist and wrong policies have led to a
decline in the value of the dollar, which is damaging the reputation of the
United States.”
According to
Gabriela Siller, President Trump’s decisions are affecting American production
and are now making its value questionable in the eyes of other countries that
consider the dollar a safe haven.
A direct
reason for the dollar’s weakness is that American exports have become more
competitive in the international market because they are cheaper for foreign
buyers.
On the other
hand, the prices of imported goods in the United States have increased.
Interest
rates
Low interest
rates in the United States can generally lead to a decline in the value of the
dollar because this makes the currency less attractive to investors and bank
savings holders.
So a weaker
dollar could force the US Federal Reserve (central bank) to lower interest
rates further.
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Raising
interest rates is often a way for central banks to combat inflation because it
encourages people to spend less in stores and elsewhere.
Trump has
called on the Federal Reserve to lower interest rates.
But if the
Federal Reserve decides to support the dollar by keeping interest rates steady,
its decision could actually help limit inflation in the United States while
preventing the greenback from falling further.
Loss of
confidence
In the
broader context, many economists worry that the dollar’s recent decline
reflects something troubling: a lack of confidence in the United States.
“Global
trust and reliance on the dollar has been built over half a century or more,”
Barry Aichengreen, an economist at the University of California, Berkeley, said
in late April.
“But now
Americans can lose that confidence in the blink of an eye.”
Why does
Trump want to see a weak dollar?
For decades,
the US administration has encouraged a strong dollar policy.
This policy
helps keep the country's borrowing costs low and, from a geopolitical
perspective, the US is able to maintain its reputation as a powerful state
abroad.
This policy
also helps put pressure on non-aligned countries such as Iran, Russia and
Venezuela by limiting their access to the US currency.
The demand
for the dollar has always been high, and it has not decreased even during the
economic crisis in the US.
But some
analysts say that the Trump administration sees things differently.
According to
them, President Trump sees the strength of the dollar as an obstacle to the
"manufacturing revolution" in the US.
From Trump's
perspective, a weak dollar would help revive the manufacturing sector. The rise
of this sector is seen by some circles as a "golden age" in the US.
Gabriela
Siler says that "Trump does not want a strong dollar because it increases
imports."
According to
this theory, the country needs a weak dollar to boost domestic manufacturing,
restore factory jobs, increase exports and help reduce the country's large and
growing trade deficit.
According to
US media and some economists, there is a plan called the 'Mar-a-Lago Accord'
proposed by Stephen Miron, chairman of Trump's 'Council of Economic Advisers',
to weaken the dollar.
Doubts on
reserve currency
A reserve
currency is one that is held by central banks or authorities as part of a
country's foreign exchange reserves. It is used for international transactions,
investments and to pay for debt.
The
so-called Mar-a-Lago Accord is allegedly based on the idea that the dollar's
status as the world's main reserve currency is not a privilege but a burden
that has contributed to the collapse of the industrial system in the United
States.
According to
this argument, global demand for the dollar increases the value of these goods,
i.e. it makes American-made products more expensive.
Is there an
alternative to the dollar?
It’s all
like the many parts of a machine, with one part moving and another moving.
This was in
April when Trump’s successive tariff announcements damaged investor confidence
and weakened the value of U.S. bonds.
Governments
have been bailing out their debt through bonds.
This lack of
confidence has also not been good for the dollar, although some analysts
believe it is a temporary matter.
Steve
Ricciotto, an economist at Mizuho Financial, told the AP that no other currency
or asset, such as the Chinese yuan, bitcoin or gold, is big enough to meet
demand.
In his
opinion, there is no alternative to the dollar at the moment.
The tariffs,
along with the dollar’s depreciation, will make American consumers aware of
the potential for inflation as they pay higher prices for imported goods.
They will
also remember Trump’s campaign promise to cut spending.
Many factors
are playing a role. President Trump's trade war, his proposed budget and tax
cuts, inflation and interest rates will all affect the value of the dollar.
There are
more questions than answers right now, although Wall Street estimates suggest
that the dollar's chances of regaining its strength are not looking remote.
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