the future of the u.s. dollar: various scenarios
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THE FUTURE OF THE U.S. DOLLAR: VARIOUS SCENARIOS. Alex Kondonassis, University of Oklahoma A. G. Malliaris, Loyola University Chicago Chris Pavaskevopoulos, York University, APF/LUC Conference January 4, 2007. OUTLINE. Brief Evaluation of the Current Global Monetary System - PowerPoint PPT PresentationTRANSCRIPT
THE FUTURE OF THE U.S. DOLLAR:THE FUTURE OF THE U.S. DOLLAR:VARIOUS SCENARIOSVARIOUS SCENARIOS
Alex Kondonassis, University of OklahomaA. G. Malliaris, Loyola University ChicagoChris Pavaskevopoulos, York University,
APF/LUC Conference
January 4, 2007
OUTLINEOUTLINE
1. Brief Evaluation of the Current Global Monetary System
2. Discussion of its Successes and Weaknesses
3. Role of Financial and Real Factors
4. Possible Future Scenarios
EVALUATION OF THE GLOBAL EVALUATION OF THE GLOBAL MONETARY SYSTEMMONETARY SYSTEM
• Emphasis on Flexible Exchange Rates
• Emphasis on Independent Monetary Policies
• Promotion of Financial Integration and Capital Mobility
LESSONS LEARNEDLESSONS LEARNED
• Global Financial Instabilities
• Role of IMF
• Search for a NEW Financial Architecture
WHERE ARE WE NOW?WHERE ARE WE NOW?
1. U.S. Economy and the Dollar
2. EU and the Euro
3. Japan, China, India and Other Economies
4. NAFTA
GLOBAL MONETARY SYSTEMGLOBAL MONETARY SYSTEM
1. Role of Major Currencies
2. Dollar, Euro, Yen
3. Other
JAPANESE YENJAPANESE YEN
Source: www.barchart.com
EUROEURO
Source: www.barchart.com
BRITISH POUNDBRITISH POUND
Source: www.barchart.com
SWISS FRANCSWISS FRANC
Source: www.barchart.com
RENMINBIRENMINBI
DETERMINANTS OF DETERMINANTS OF CURRENCY IMPORTANCECURRENCY IMPORTANCE
1. Size of the Economy : GDP/ Population
2. Size of Financial Markets : Equity, Bonds, Real Estate
3. Depth of Foreign Currency Markets: FX Turnover
4. Economic Fundamentals: Growth, Employment, Inflation
EU, US and JAPANEU, US and JAPANKey Statistics for 2004
Characteristics Unit Euro Area United States Japan
Population Millions 309.7 294.0 127.6
Gross GDP $ trillions 9.07 12.24 3.96
GDP (share of world GDP) % 15.3 20.9 6.9
GDP per capita $ thousands 29.28 41.64 31.08
Unemployment Rate % 8.8 5.5 4.7
General Government Surplus(+) or deficit (-)
% of GDP -2.7 -4.4 -7.0
Gross debt % of GDP 70.6 48.7 149.2
Exports of Goods and Services % of GDP 19.5 9.8 13.6
Imports of Goods and Services % of GDP 17.8 15.0 11.6
Current account balance % of GDP 0.6 -5.7 3.7
Source: www.worldbank.com
Key Potential Economic PartnersKey Potential Economic PartnersYear 2004Year 2004
CountriesPopulation in
millionsTotal GDP in billion of USD
Exports in % of
GDP
Imports in % of
GDPSurplus(+)/deficit (-) as
% of GDP
China 1296.2 1931.7 34 31.4 2.6
India 1079.7 691.2 19.1 22.5 -3.6
Brazil 183.9 604.0 18 13.4 4.6
Mexico 103.8 676.5 30.1 31.9 -1.8
England (UK) 59.9 2124.4 24.7 28 -3.3
Argentina 38.4 153.0 25.3 18.1 7.2
Canada 32.0 978.0 34.4 30.4 4.0
Australia 20.1 637.3 17.6 20.6 -3.0
Chile 16.1 94.1 36.3 29.6 6.7
New Zealand 4.1 98.9 29.1 28.9 0.2
Source: www.worldbank.com
Reserve Currency HoldingsReserve Currency Holdingsoriginal IMF dataoriginal IMF data
1977-2002 data, updated IMF Internal data
Reserves held by central banks as Reserves held by central banks as shares of total – major currenciesshares of total – major currencies
(revised IMF data spliced into old data after 1979) 5/2/05(revised IMF data spliced into old data after 1979) 5/2/05
Source: Frankel(2005)
ADVANTAGES TO A COUNTRY OF HAVING ITS ADVANTAGES TO A COUNTRY OF HAVING ITS CURRENCY PLAY A LARGE ROLE IN THE WORLD CURRENCY PLAY A LARGE ROLE IN THE WORLD
1. Convenience for its residents
2. Business for its banks & other financial institutions
3. Seignorage more broadly as the willingness of private investors to hold $-denominated assets: America’s “exorbitant privilege”
4. Political power and prestige
FUTURE SCENARIOSFUTURE SCENARIOS
1. Dollar weakens & Euro strengthens
2. Dollar + Pound
3. Dollar + Pound + Australian Dollar
4. Dollar and NAFTA and Japan
Disciplined Decline in the Dollar andDisciplined Decline in the Dollar andAppreciation of the Euro at 10% annual rateAppreciation of the Euro at 10% annual rate
Euro and UK entry Euro and UK entry vs.vs. US and Partners US and PartnersVarious ScenariosVarious Scenarios
0
ROLE OF RENMINBIROLE OF RENMINBI
1. Review of Past
2. Possible Scenarios
CONCLUSIONSCONCLUSIONS
1. Currency volatility is expected to continue
2. U.S Dollar will be challenged by Euro
3. Political, Economic and Military Conditions are important