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THE FUTURE OF THE U.S. DOLLAR: VARIOUS SCENARIOS

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

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THE FUTURE OF THE U.S. DOLLAR: VARIOUS SCENARIOS

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  1. 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

  2. OUTLINE • Brief Evaluation of the Current Global Monetary System • Discussion of its Successes and Weaknesses • Role of Financial and Real Factors • Possible Future Scenarios

  3. EVALUATION OF THE GLOBAL MONETARY SYSTEM • Emphasis on Flexible Exchange Rates • Emphasis on Independent Monetary Policies • Promotion of Financial Integration and Capital Mobility

  4. LESSONS LEARNED • Global Financial Instabilities • Role of IMF • Search for a NEW Financial Architecture

  5. WHERE ARE WE NOW? • U.S. Economy and the Dollar • EU and the Euro • Japan, China, India and Other Economies • NAFTA

  6. GLOBAL MONETARY SYSTEM • Role of Major Currencies • Dollar, Euro, Yen • Other

  7. JAPANESE YEN Source: www.barchart.com

  8. EURO Source: www.barchart.com

  9. BRITISH POUND Source: www.barchart.com

  10. SWISS FRANC Source: www.barchart.com

  11. RENMINBI

  12. DETERMINANTS OF CURRENCY IMPORTANCE • Size of the Economy : GDP/ Population • Size of Financial Markets : Equity, Bonds, Real Estate • Depth of Foreign Currency Markets: FX Turnover • Economic Fundamentals: Growth, Employment, Inflation

  13. EU, US and JAPAN Source: www.worldbank.com

  14. Key Potential Economic PartnersYear 2004 Source: www.worldbank.com

  15. Reserve Currency Holdingsoriginal IMF data 1977-2002 data, updated IMF Internal data

  16. Reserves held by central banks as shares of total – major currencies(revised IMF data spliced into old data after 1979) 5/2/05 Source: Frankel(2005)

  17. ADVANTAGES TO A COUNTRY OF HAVING ITS CURRENCY PLAY A LARGE ROLE IN THE WORLD • Convenience for its residents • Business for its banks & other financial institutions • Seignorage more broadly as the willingness of private investors to hold $-denominated assets: America’s “exorbitant privilege” • Political power and prestige

  18. FUTURE SCENARIOS • Dollar weakens & Euro strengthens • Dollar + Pound • Dollar + Pound + Australian Dollar • Dollar and NAFTA and Japan

  19. Disciplined Decline in the Dollar andAppreciation of the Euro at 10% annual rate

  20. 0 Euro and UK entry vs. US and PartnersVarious Scenarios

  21. ROLE OF RENMINBI • Review of Past • Possible Scenarios

  22. CONCLUSIONS • Currency volatility is expected to continue • U.S Dollar will be challenged by Euro • Political, Economic and Military Conditions are important

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