Paul, I would just add the "confidence" factor and the relative growth of money supply in each country relative to the growth of their respective economies. Countries that print the stuff with abandon are subject to debasement of their currencies. The US currency, despite a strong growth in M3 is currently the "international currency" with many economies having segments within them operating completely on a dollar basis (for instance, real estate in some countries are quoted in US dollars, not the local country's currency). About half a trillion of our money supply (paper dollars) is actually used in such "underground economies" (an interest free loan worth about 25 Billions per year to us). Until foreigner start to lose their faith or confidence in our dollar, the dollar will stay strong. In principle, with our balance of payments starting to deteriorate, the dollar should start to weaken, but the balance of payment, is not the only factor, we have high interest rates as well as the confidence factor supporting our currency (and thus weakening other currencies).
Zeev |
