Dollar Sinks the Lowest Since It Started to Float
New York Times | September 22, 2007
By Floyd Norris
A DOLLAR bill won’t buy what it used to. The greenback is worth less than ever before in this age of flexible exchange rates, and it has declined faster during the Bush administration than in any president’s term since Richard M. Nixon severed the dollar’s ties to gold in 1971.
This week, the euro traded above $1.40 for the first time, and the Canadian dollar climbed back to parity with the American dollar for the first time in 30 years.
The chart shows the performance of the trade-weighted dollar index, as maintained by the Federal Reserve. Measured against a basket of currencies that has occasionally been updated by the Fed, the dollar is now almost 40 percent below its level in early 1971.
It has been a bumpy ride. The dollar suffered badly in the 1970s, particularly during Jimmy Carter’s administration, when inflation seemed to be getting out of control. But it then soared in the early 1980s, in response to higher interest rates. It sank again as rates fell, but recovered during the economic strength of the late 1990s. Now the index has fallen below the lows set in 1995.
The chart also shows the index’s compound annual change in each president’s administration.
Not all the moves can be explained by the dollar’s strength or weakness, of course. The relative attractiveness of other currencies has varied. Under President Bush, the dollar has almost held its own against the yen, as the Japanese government has feared a strong yen could damage the country’s exports.
Still, during the Bush administration, the dollar has fallen against each of the five currencies shown — the euro, the yen, the British pound, the Australian dollar and the Canadian dollar. It also is down against the two currencies in the index — the Swiss franc and the Swedish krona — that are not shown.
Over all, the dollar index has fallen at a rate of 4.8 percent a year in this administration, considerably more than the previous record of 2.7 percent a year, during the Carter administration. Mr. Bush is the first president not to show a gain against any of the currencies in this index.
One important currency the Chinese yuan is excluded because the index tracks only freely traded currencies. The Chinese government has allowed its currency to advance slowly against the dollar, but not by as much as the Bush administration wants, and the American trade deficit with China has soared.
Early in the Bush administration, officials maintained they were following a strong-dollar policy. Of late, that is not a phrase heard very often.
