By Mohamed H. Zakaria, Jeddah published 10 Oct 2004 (Friday 04 Shawal 1427H)
The Mighty Dollar
This has reference to the article “The Danger of the Current World Monetary System” by Abdelmenem Jamil Addas (Oct. 4). The “mighty” dollar is not only US money but also the world’s. Other countries use it for international trade, global investment and even pocket money. The Federal Reserve estimates that more than 70 percent of printed US dollars — $460 billion — is held outside the US. From Afghanistan to Cuba and Latin America and the former Soviet Union, people trust the dollar more than their own currency. More than 75 percent of foreign exchange reserves held by most central banks in the world — including Japan’s $800 billion, India’s $120 billion and Taiwan’s $300 billion — is in US dollars. The euro is second with 20 percent. Further, most raw materials such as oil and wheat are bought and sold in dollars. Japan buys 75 percent of its imports with dollars and sells more than 50 percent of its exports for dollars. The dollar remains the most popular currency for international bank loans and bonds and it has helped to lubricate the global economy since World War II. The US provided dollars to Europe through the Marshall Plan to buy food and machinery on world markets after World War II when Europeans had few dollars.
It is worth mentioning that the US Federal Reserve has never devalued dollar against any major currency since its creation although Nixon’s move in 1971 to break the link between gold and thedollar and allow the US currency to float not only devalued the dollar but also scrapped the underlying principal of the Bretton Woods Accord. The dollar, which was convertible to gold at a fixed rate, was the system’s anchor. The recent unexpected rise of the euro against the dollar brought chaos and threatened the global economy as European and Asian exports to US became expensive and US exports to the rest of the world very competitive.
So a strong dollar is good news for the rest of the world. The Americans have created over a period of time a strong currency to finance their needs in a country where 5 percent of the world population consumes 15 percent of world resources. Of the one billion tons of steel the world produces, the Americans consume more than
10 percent; more than 17 million cars of the 62 million produced by the car industry are sold in America — a whooping 30 percent. America is the major trading partner of almost every country in the world, either being importer or exporter. The majority of the US credit card debt of $2.0 trillion, $6.7 trillion in mortgages, $7.30 trillion of business debt and $3.90 trillion of federal government is held by foreign governments and individuals.
I am afraid the world has no choice but to keep feeding American consumers and continue to manufacture goods and export them to America for dollars until a new system replaces the dollar which may not happen in this century.