Why America's Currency Is the World's Problem
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The ailing US economy seems to be driving the exchange rate of the dollar inexorably downward, with serious consequences for the global economy. Politicians and central bankers are looking on helplessly as the economic outlook worsens by the day and European companies rack up huge losses.
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It costs about four cents to produce a one-dollar bill -- a pittance, compared to the greenback's influence on the world's economy.
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The exchange rate of the dollar can boost the fortunes of companies and entire economies -- or plunge them into crisis. Its rate against the euro fluctuates by a few hundredths of a cent each day. But in the past five years that fluctuation has more often than not taken the US currency on a downward trajectory, causing consternation -- and now despair -- among people around the world.
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Last Thursday, Thomas Enders, the CEO of Airbus, gave a speech to employees in building 261 at the consortium's production complex in Hamburg. He was there to tell them that a pain threshold had reached. The graph he had projected on the wall revealed the horrifying progression of the dollar over time. The US currency has lost 13 percent of its value against the euro since the beginning of the year. Conversely, the euro has risen in value, and for a short time last Friday it even approached the symbolic $1.50 threshold.
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According to Enders, the rate at which the US currency is falling makes "reasonable processes of adjustment" a virtual impossibility. Every cent the dollar drops against the euro costs Airbus €100 million. This has even the normally optimistic Enders alarmed. "It's life-threatening," he told his audience.
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But he declined to say how Airbus would react, that is, whether layoffs would exceed the 10,000 currently planned or whether the company will be forced to close some of its plants. Apparently even he doesn't know what will happen yet.
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Like so many in politics and business, Enders hasn't a clue what to do about the decline of the dollar, still the world's reserve currency. The speed of that decline is especially worrisome. In the last 10 weeks alone, the dollar has lost 12 cents against the euro. Jean-Claude Trichet, the president of the European Central Bank, says that he already recognizes "brutal movements" in the international monetary structure.