If the US dollar collapsed in value as a result of our out-of-control debt (i.e., as a result of US economic policies, not as a result of a global economic depression), what would be the likely effect on other currencies? The Canadian Dollar? The Euro? The Peso?
Well the whole idea of a dollar collapse is that the currency market is a zero-sum game. If the US were to print enough money to double the amount we have now, the dollar ought to be worth half of what it is now. You can think of it as inflation when thinking of things internally and you can think of it as simply dividing the “US Money Supply” into smaller pieces on the global level.
So if there’s a dollar collapse then there will have to be some currency (most likely several currencies) that will “rise” relative to the dollar. Foreign Exchange is always denominated in currency pairs. if you look at Euros and US Dollars, for example. Currently 1 dollar will get you .74 Euro Cent. Now if there was a dollar “collapse” then that will go down. 1 dollar might buy you only 50 Euro cent. But if you look at it the other way around, the Euro is rising from buying 1.34 dollars to some higher level.
It is all based on supply and demand, really. Except it goes through the medium of foreign currency first. If I in Denmark want to buy some American good, then I have to buy dollars first. If nobody wants to buy dollars, then I will get a good deal. If everyone wants to buy dollars then that will change.
Interest rates affect this too. If Interest rates are high then it is very beneficial to lend money in America (remember it’s very bad to borrow with high rates). So foreigners will need to buy dollars first before they can loan them out. If the whole world wants dollars then the rates go up relative to who is buying them.
Countries with a currency board system such as Hong Kong, would see their currency collapse in line with the greenback.
It would also be pretty tough on all those governments with big holdings of USD. Say Japan and China. Since they hold hundreds of billions of dollars of USD denominated government debt, whose value would drop along with the greenback, there would be an effect on both their own economies and should also weaken their currencies.
The Euro and the Yen should both appreciate from a falling dollar. Their government debt would replace the dollar as the global debt instrument of choice.
Well, China Guy and Merkwurdigliebe said it all really. I have nothing to debate.
I’d add 2 points that might lead to debate.
A.
If the dollar were to “collapse” there are real world economic effects to that beyond currency level as others have hinted at. For instance in China, there is a global interdependency which helped to kept interest rates low and the dollar relatively strong and fueled the further U.S. consumption of Chinese goods. A collapse and an associated ripple thru Asia, presumably tied with Asia ceasing to buy the U.S. debt, I would expect higher interest rates (which would fuel an economic downturn as well) - and it might be harder for China/Japan/Asia to recover quickly through exports with a weakened dollar.
The same is certainly true in Canada.
Europe might be in a different game – they would lose their U.S. export market but might witness a “race to the bottom” as producers in Asia, North and South America chase the Euro, they could see consumer and service prices fall – which, in turn could cause protectionist and/or economic dislocation at home.
In short, if the dolalr collapses there would be a world wide econmic re-ording with winners and losers in every country and every sector worldwide.
B.
What constitutes a “collapse” ? No one agrees. The Dollar has declined about 20% against the Euro (& other currencies) over the past 5 years - yet the central Asian Banks have continued to hoard dollars. While OTOH a 3-6% decline in one-two days would be earth shattering SHOCKING news that would likely cause Central Banks to dump dollars -even though relatively it wouldn’t be a 20% collapse (immediately).
Personally I consider the GBP and EUR both grossly overvalued relative to the USD.
Apart from those supposedly ‘reserve currencies’ I can’t see much that the USD can decline against - after all the majority of trade takes place in the USD or currencies that are pegged to the USD.
For some obscure reason major exporters like keeping their surpluses in USD, and should they change their minds they don’t have many alternatives.
Mostly a decline in USD is a nuisance for European exporters, short of a complete international financial collapse, Dollar area economies would barely notice a decline, it would just mean more tourists from Europe, more expensive BMWs and a rise in the price of French wine.
Were I speculating I would bet on a fall in GBP against the USD - come to think of it I’m doing just that 
A decline, yes, would probably not be so very earthshaking. Wine, for example, is essentially an agricultural product, meaning if we could equate it to a typical produce, it’s produced and sold in bushel lots. French and Italian vintners still seem to have no trouble competing with Californians in the $10 to $20 range, per bottle.
But if the dollar truly collapsed, wouldn’t that place a drag on the EU? The Euro would go up, but might that not lead to a deflationary spiral for them?