the future of the u.s. dollar: various scenarios
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THE FUTURE OF THE U.S. DOLLAR: VARIOUS SCENARIOS. Alex Kondonassis, University of Oklahoma A. G. Malliaris, Loyola University Chicago Chris Pavaskevopoulos, York University, APF/LUC Conference January 4, 2007. OUTLINE. Brief Evaluation of the Current Global Monetary System - PowerPoint PPT PresentationTRANSCRIPT
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THE FUTURE OF THE U.S. DOLLAR:THE FUTURE OF THE U.S. DOLLAR:VARIOUS SCENARIOSVARIOUS SCENARIOS
Alex Kondonassis, University of OklahomaA. G. Malliaris, Loyola University ChicagoChris Pavaskevopoulos, York University,
APF/LUC Conference
January 4, 2007
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OUTLINEOUTLINE
1. Brief Evaluation of the Current Global Monetary System
2. Discussion of its Successes and Weaknesses
3. Role of Financial and Real Factors
4. Possible Future Scenarios
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EVALUATION OF THE GLOBAL EVALUATION OF THE GLOBAL MONETARY SYSTEMMONETARY SYSTEM
• Emphasis on Flexible Exchange Rates
• Emphasis on Independent Monetary Policies
• Promotion of Financial Integration and Capital Mobility
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LESSONS LEARNEDLESSONS LEARNED
• Global Financial Instabilities
• Role of IMF
• Search for a NEW Financial Architecture
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WHERE ARE WE NOW?WHERE ARE WE NOW?
1. U.S. Economy and the Dollar
2. EU and the Euro
3. Japan, China, India and Other Economies
4. NAFTA
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GLOBAL MONETARY SYSTEMGLOBAL MONETARY SYSTEM
1. Role of Major Currencies
2. Dollar, Euro, Yen
3. Other
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JAPANESE YENJAPANESE YEN
Source: www.barchart.com
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EUROEURO
Source: www.barchart.com
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BRITISH POUNDBRITISH POUND
Source: www.barchart.com
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SWISS FRANCSWISS FRANC
Source: www.barchart.com
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RENMINBIRENMINBI
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DETERMINANTS OF DETERMINANTS OF CURRENCY IMPORTANCECURRENCY IMPORTANCE
1. Size of the Economy : GDP/ Population
2. Size of Financial Markets : Equity, Bonds, Real Estate
3. Depth of Foreign Currency Markets: FX Turnover
4. Economic Fundamentals: Growth, Employment, Inflation
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EU, US and JAPANEU, US and JAPANKey Statistics for 2004
Characteristics Unit Euro Area United States Japan
Population Millions 309.7 294.0 127.6
Gross GDP $ trillions 9.07 12.24 3.96
GDP (share of world GDP) % 15.3 20.9 6.9
GDP per capita $ thousands 29.28 41.64 31.08
Unemployment Rate % 8.8 5.5 4.7
General Government Surplus(+) or deficit (-)
% of GDP -2.7 -4.4 -7.0
Gross debt % of GDP 70.6 48.7 149.2
Exports of Goods and Services % of GDP 19.5 9.8 13.6
Imports of Goods and Services % of GDP 17.8 15.0 11.6
Current account balance % of GDP 0.6 -5.7 3.7
Source: www.worldbank.com
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Key Potential Economic PartnersKey Potential Economic PartnersYear 2004Year 2004
CountriesPopulation in
millionsTotal GDP in billion of USD
Exports in % of
GDP
Imports in % of
GDPSurplus(+)/deficit (-) as
% of GDP
China 1296.2 1931.7 34 31.4 2.6
India 1079.7 691.2 19.1 22.5 -3.6
Brazil 183.9 604.0 18 13.4 4.6
Mexico 103.8 676.5 30.1 31.9 -1.8
England (UK) 59.9 2124.4 24.7 28 -3.3
Argentina 38.4 153.0 25.3 18.1 7.2
Canada 32.0 978.0 34.4 30.4 4.0
Australia 20.1 637.3 17.6 20.6 -3.0
Chile 16.1 94.1 36.3 29.6 6.7
New Zealand 4.1 98.9 29.1 28.9 0.2
Source: www.worldbank.com
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Reserve Currency HoldingsReserve Currency Holdingsoriginal IMF dataoriginal IMF data
1977-2002 data, updated IMF Internal data
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Reserves held by central banks as Reserves held by central banks as shares of total – major currenciesshares of total – major currencies
(revised IMF data spliced into old data after 1979) 5/2/05(revised IMF data spliced into old data after 1979) 5/2/05
Source: Frankel(2005)
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ADVANTAGES TO A COUNTRY OF HAVING ITS ADVANTAGES TO A COUNTRY OF HAVING ITS CURRENCY PLAY A LARGE ROLE IN THE WORLD CURRENCY PLAY A LARGE ROLE IN THE WORLD
1. Convenience for its residents
2. Business for its banks & other financial institutions
3. Seignorage more broadly as the willingness of private investors to hold $-denominated assets: America’s “exorbitant privilege”
4. Political power and prestige
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FUTURE SCENARIOSFUTURE SCENARIOS
1. Dollar weakens & Euro strengthens
2. Dollar + Pound
3. Dollar + Pound + Australian Dollar
4. Dollar and NAFTA and Japan
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Disciplined Decline in the Dollar andDisciplined Decline in the Dollar andAppreciation of the Euro at 10% annual rateAppreciation of the Euro at 10% annual rate
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Euro and UK entry Euro and UK entry vs.vs. US and Partners US and PartnersVarious ScenariosVarious Scenarios
0
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ROLE OF RENMINBIROLE OF RENMINBI
1. Review of Past
2. Possible Scenarios
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CONCLUSIONSCONCLUSIONS
1. Currency volatility is expected to continue
2. U.S Dollar will be challenged by Euro
3. Political, Economic and Military Conditions are important