The future path of the U.S. dollar is likely to depend
much less on the actions of Asian central banks than on U.S.
domestic policies, the economist Joseph Stiglitz said Tuesday.
Indications that Asian central banks are reducing their large
purchases of U.S. dollar securities, especially government bonds,
have roiled the currency markets in recent weeks. The U.S. has also
asked China to revalue its currency, the yuan or renminbi, in hopes
that would narrow the U.S. trade deficit with China and thus reduce
downward pressure on the dollar.
But Stiglitz said the U.S. should look at home for the root causes
of the dollar's weakness: a huge current account deficit that can be
financed only by increasingly large foreign purchases of U.S.
securities.
A country's current account deficit is by definition the gap between
how much it invests and how much it saves, Stiglitz said, arguing
that since domestic savings in the U.S. are so low, capital inflows
have to be large.
"These are basic economic identities," he told a conference
organized by Credit Suisse First Boston. "The heart of the problem
is domestic savings. And underlying that are the huge fiscal
deficits."
Stiglitz, who was a senior economic adviser to the Clinton
administration, blamed the large increase in budget deficits under
the Bush administration for the rapid deterioration of the U.S.
current account position.
"The question is whether the adjustments to address major imbalances
are smooth or abrupt. It's not whether the dollar is going to be
weak," he said. "The dollar was attacked in the early '70s, that's
why the world went off the fixed exchange-rate system. It can happen
again."
However, Stiglitz said, mass selling of the dollar is more likely to
happen as a result of a "rush for the exit" by private-sector
investors scared of losing money on the dollar. Central banks would
on the whole prefer currency stability, he said.
"They won't act to cause a precipitous fall in the dollar -- but
they won't necessarily try to support the value of the dollar
either," Stiglitz said.
He also argued that much-debated possible changes in China's
currency regime will have little effect on the U.S. current-account
position, and thus on the dollar.
"The exchange rate of the yuan won't have large effects on these
variables. People simply haven't come to grips with this," Stiglitz
said. A revaluation of the renminbi might narrow the U.S. trade
deficit with China, "but it will just show up in the trade deficit
with someone else," he said. |
