The Value of the Dollar, and How It Affects You
I believe there is lot of cash money in $ currency floating around the world, viz. in many countries in Africa, Latin America etc., where it is their virtual currency. Do have any estimate of quantum of such money? If the value of US $ goes down vis - a - vis other currencies, it is possible that holders of such money may shift to some other currency and thus $ will land up in US. Can you give us an idea of the impact it would have on the US economy?To answer your first question, I have not found any estimate of how many dollars in currency are currently in use throughout the world. Therefore, it is difficult to gauge the impact this cash would have on the U.S. economy if it found its way back to the U.S., as you suggest.
However, the IMF measures how many dollars are held by foreign governments as an investment by their central banks. As of Q3 2007, there was at least $2.4 trillion in dollars, or 63% of total measurable reserves. This percent is down slightly from the 68% of holdings in 2002. Governments are gradually holding more of their reserves in Euro's, which have increased to 25% of holdings. (Source: IMF, COFER Table)
As measured by exchange rates, the dollar has declined 39% against a basket of currencies since 2002. This is partly, however, a result of currency speculation. (Source: BusinessWeek, "The U.S. Dollar: Still Going Down", February 29, 2008)
The dollar as measured by demand for U.S. Treasuries is still strong. When demand is weak, the government has to pay higher yield rates. In fact, the yield for the 10 year Treasury was 3.54%, down 30% since March 4, 2002 when the yield was 5.02%.
What It Means to You
A lower dollar as measured by exchange rates means higher U.S. exports, which is good for GDP growth. Unfortunately, it also means more expensive imports, which means inflation and high oil prices.However, high demand for the dollar as evidenced by U.S. Treasuries means lower interest rates, and low fixed mortgage rates. This will help the depressed U.S. housing market. It could mean the economy could avoid a recession this year.
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