03:14 GMT +325 February 2018
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    Drop it Low: US Dollar Down Under Trump’s Presidency

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    The value of the dollar has dropped more than 15 percent versus the euro in the past six months, resulting in cheaper exports and more expensive imports for Americans. Financial policy analyst Daniel Sankey and economist Steve Keen discussed US President Donald Trump’s effect on the dollar’s global decline with Radio Sputnik’s Loud & Clear.

    Trump has repeatedly claimed that a weaker US dollar helps American companies sell more products abroad. However, is a weaker dollar good for the US? Does it put more people to work, as Trump claims?

    ​"The Trump administration got elected to the office with the promise to bring manufacturing jobs back to America. A weak dollar actually benefits US companies that export," Sankey told hosts John Kiriakou and Brian Becker.

    "So, for countries to purchase US-produced goods, they need to purchase them in dollars and if they exchange it to whatever currency they use, be it euros or yen or whatever currency it might be, they have to exchange more of that currency to equivalate the value of a single dollar, if the dollar is especially strong," Sankey explained.

    "But if the dollar is weak then they [countries buying US goods] have to convert less of their money. So, effectively it becomes cheaper for those foreign nations to purchase US goods. The dollar, when it is very strong, makes US exports very expensive and therefore US manufacturing suffers."

    "So, part of what the Trump administration is saying about the value of the dollar being too strong and wanting to devalue it is in that bid to bring back manufacturing jobs to America. But there is a lot of complexity and downstream effects on how the weak dollar also impacts investments and impacts prices that [Americans] pay for foreign goods. The vast majority of day-to-day objects that Americans buy are produced in other countries," he added. 

    Although a weaker dollar could increase the value of foreign sales and profits of US multinational companies, a steeper decline in the US dollar could also lead to a spike in inflation, which is the increase in the price of goods and services.

    According to Keen, author of "Debunking Economics" and the world's first crowdfunded economist, the American dollar has always been overvalued because it is a reserve currency, or a currency held in big quantities by governments and institutions as part of their foreign exchange reserves.

    Reserve currencies are largely used in international transactions, international investments and in all facets of global economy. Those who live in a country that uses a reserve currency can usually purchase imports more cheaply than other nations because they do not have to exchange their currency in order to trade.

    "One of the worst agreements that America made was deciding to become a reserve currency. What that meant is that every country in the world who wanted to trade needed American dollars, which means that the American dollar has always been overvalued than if it was just another international currency," Keene explains. 

    According to Sankey, one of the main reasons the US pushed for the dollar to become a reserve currency was to force a massive influx of foreign capital into US dollar and US treasury investments, which is a big part of how the US financed a lot of its deficit.

    "So, the intention was for banks that are based in the US to get an outsized influence in the global market to play by their currency or play by their rules.The reserve currency forces the US to become involved in economies across the world and also become involved in global military conflicts because the conflicts are all bound up in our economy through the dollar. So, the US dollar [being a reserve currency] increases militarism and imperialism. But it also gives the banks an outsized weight and an outsized power in the US. They [the US government] knew this would happen and that was their goal, especially for those politicians and legislators that were in the pockets of the banking industry at the time," Sankey explains.

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    Tags:
    economics, inflation, currency, euro, dollar, Donald Trump, Europe, United States
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