Why isn’t the dollar falling?

Date posted: February 7, 2013

With all the economic issues in our country, including debates over the federal budget and debt, why isn’t the U.S. dollar sinking in value against foreign currencies? N.C. State University economist Mike Walden explains.

“Many would say that the U.S. economy and policy making is just a big mess, and why would anyone want to invest here? Why would anyone want to invest in U.S. dollars? As you said, shouldn’t the value of a dollar be sinking? And it’s not.

“I think the essential reason is that one of the things that the U.S. enjoys and one of the things that the U.S. dollar enjoys is a safe-haven status. It’s something you don’t confer on yourself. It’s something that you build up over time. And what that means is at investors around the world, whenever they’re worried about anything — for example, European investors might be worried about where the euro’s going, Chinese investors might be worried that the Chinese economy is slipping too far, (and) other investors around the world might be worried about the political stability of their country – whenever an investor is worried, where do they go? Where do they send their income to invest?  They send it to the U.S.

“And we’ve had a lot of worries around the world recently in all those areas that I mentioned. And so we’re still seeing substantial investments in U.S. financial investments, which essentially means in U.S. dollars, continuing. And that’s really holding up the value of the dollar very well against foreign countries. Will this continue in the future?  I don’t know. But right now that safe-haven status is still helping us tremendously.”

 

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