# Why exactly is the dollar losing value vis à vis other currencies? **URL:** \ **Category:** Factual Questions\ **Created:** [November 25, 2007, 2:38am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660 "2007-11-25T02:38:43Z")\ **Posts on this page:** 17\ **Page:** 1
**Author:** ![zeno](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/zeno/32/15040_2.png) [@zeno](https://boards.straightdope.com/u/zeno)\ **Post date:** [November 25, 2007, 2:38am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/1 "2007-11-25T02:38:43Z")
Is it because the govt it printing money? But that would cause inflation and we don’t see that. I have a general understanding of these things, but I simply don’t understand what going on right now. ---
**Author:** ![Darth\_Nader](https://avatars.discourse-cdn.com/v4/letter/d/ad7895/32.png) [@Darth\_Nader](https://boards.straightdope.com/u/Darth_Nader)\ **Post date:** [November 25, 2007, 2:44am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/2 "2007-11-25T02:44:59Z")
Debt. Lack of trust. Fear. ---
**Author:** ![Chasing\_Dreams](https://avatars.discourse-cdn.com/v4/letter/c/258eb7/32.png) [@Chasing\_Dreams](https://boards.straightdope.com/u/Chasing_Dreams)\ **Post date:** [November 25, 2007, 2:48am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/3 "2007-11-25T02:48:09Z")
Bush. War debt. Deficit. Housing Crash. Credit crunch. ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [November 25, 2007, 2:50am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/4 "2007-11-25T02:50:26Z")
I believe that a big reason for it is the US’s large current accounts deficit, which IIRC isn’t being balanced by the net capital outflow. The simple way to think of this is that the US has a large trade deficit: that means that there are lots of Americans in the market looking to buy goods with American dollars, so the supply of American dollars on the exchange markets is high. The net capital outflow is the difference between the amount of foreign assets held by Americans and the amount of American assets held by foreigners. If this were also high than there would be a lot of foreigners looking to buy American assets, and they need American dollars to do so, so there would be a high demand for American dollars and the exchange rate would be stable. However, this isn’t happening, so the demand for American dollars is not balancing the supply, and therefore the exchange rate must drop to bring things back to equilibrium. ---
**Author:** ![Darth\_Nader](https://avatars.discourse-cdn.com/v4/letter/d/ad7895/32.png) [@Darth\_Nader](https://boards.straightdope.com/u/Darth_Nader)\ **Post date:** [November 25, 2007, 3:30am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/5 "2007-11-25T03:30:13Z")
Most American Dollars are already spent, in other words. We’ve have been fairly good about paying off our debits, in the past. But some folks are starting to worry if we’ll be good for it this time around-- and why bother, if the euro feels safer, anyways? ---
**Author:** ![River\_Hister](https://avatars.discourse-cdn.com/v4/letter/r/85e7bf/32.png) [@River\_Hister](https://boards.straightdope.com/u/River_Hister)\ **Post date:** [November 25, 2007, 3:32am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/6 "2007-11-25T03:32:23Z")
Don’t interest rates and future expectations thereof have a pretty big impact on it? ---
**Author:** ![Darth\_Nader](https://avatars.discourse-cdn.com/v4/letter/d/ad7895/32.png) [@Darth\_Nader](https://boards.straightdope.com/u/Darth_Nader)\ **Post date:** [November 25, 2007, 3:37am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/7 "2007-11-25T03:37:37Z")
**Rysto** , do you teach? I’m working on this proof of a theory of a triangle grey-market trade between Mexico and the US and Japan. email me. ---
**Author:** ![Darth\_Nader](https://avatars.discourse-cdn.com/v4/letter/d/ad7895/32.png) [@Darth\_Nader](https://boards.straightdope.com/u/Darth_Nader)\ **Post date:** [November 25, 2007, 3:45am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/8 "2007-11-25T03:45:08Z")
[QUOTE=River Hister] Don’t interest rates and future expectations thereof have a pretty big impact on it? [/QUOTE] Depends. What are ya up for? If you are a hardcore gold-standard kinda guy-- yer probably living underground, and not online anyways, right? As Robert Heinlein advised, go ahead and pay a little extra tax, it will keep their 'puters from finding you when the shit happens for real. ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [November 25, 2007, 3:48am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/9 "2007-11-25T03:48:50Z")
Teach? Good God no, I’m just an undergrad. ---
**Author:** ![Darth\_Nader](https://avatars.discourse-cdn.com/v4/letter/d/ad7895/32.png) [@Darth\_Nader](https://boards.straightdope.com/u/Darth_Nader)\ **Post date:** [November 25, 2007, 3:54am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/10 "2007-11-25T03:54:20Z")
[QUOTE=Rysto] Teach? Good God no, I’m just an undergrad. [/QUOTE] Well, shit. ---
**Author:** ![Darth\_Nader](https://avatars.discourse-cdn.com/v4/letter/d/ad7895/32.png) [@Darth\_Nader](https://boards.straightdope.com/u/Darth_Nader)\ **Post date:** [November 25, 2007, 3:56am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/11 "2007-11-25T03:56:50Z")
…so, are we cool with the Mexico thing? ---
**Author:** ![Hari\_Seldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hari_seldon/32/5173_2.png) [@Hari\_Seldon](https://boards.straightdope.com/u/Hari_Seldon)\ **Post date:** [November 25, 2007, 6:19am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/12 "2007-11-25T06:19:57Z")
Vis-a-vis the Canadian dollar, the changes in the exchange rate track the price of oil. This makes sense since Canada sells so much oil to the US. It is not so much that anyone is seriously afraid the US will default, but the US debt is denominated in US dollars and the out-of-control trade deficits and large foreign borrowing (especially from China) create the fear that the debt will be paid off with cheap dollars. The result is a run on the USD that is bringing about the very thing they fear. But their fear is entirely rational. A year ago I directed the manager of my portfolio to get rid of all US stocks and securities because I feared exactly this scenario. Of course, the Fed, on account of the sub-prime mortgage fiasco has lowered interest rates and this is another cause of the sinking dollar. It simply is worth more to bondholders to hold Canadian and other securites since they pay more. This creates demand for those other securities. ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [November 25, 2007, 12:00pm UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/13 "2007-11-25T12:00:22Z")
[QUOTE=Hari Seldon] but the US debt is denominated in US dollars and the out-of-control trade deficits and large foreign borrowing (especially from China) create the fear that the debt will be paid off with cheap dollars. [/QUOTE] China holds approximately 5% of the US government debt. [Cite](http://www.msnbc.msn.com/id/17424874/): the biggest holder of Treasury debt was the U.S. government itself, with about 52 percent of the total $8.5 trillion in paper that’s out there. That’s leaves a little over $4 trillion in public hands. The biggest chunk (about 25 percent of the $8.5 trillion total) is held by foreign governments. Japan tops the list (with $644 billion), followed by China ($350 billion), United Kingdom ($239 billion) and oil exporting countries ($100 billion). ---
**Author:** ![Lumpy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lumpy/32/446_2.png) [@Lumpy](https://boards.straightdope.com/u/Lumpy)\ **Post date:** [November 25, 2007, 3:23pm UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/14 "2007-11-25T15:23:16Z")
IIRC, Iran has called for petroleum exporting nations to no longer accept payment in dollars. Is that a factor or is that not taken seriously? ---
**Author:** ![The\_Flying\_Dutchman](https://avatars.discourse-cdn.com/v4/letter/t/9fc348/32.png) [@The\_Flying\_Dutchman](https://boards.straightdope.com/u/The_Flying_Dutchman)\ **Post date:** [November 25, 2007, 4:07pm UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/15 "2007-11-25T16:07:15Z")
From my perspective, and I’m certainly no expert and my memory does go dim, over my lifetime the Canadian economy with respect to federal budget surpluses, interest rates, and inflation pretty well followed the US situation. Today however Canada is awash in budget surpluses and the US has been burdened by budget deficits launched by the Iraqi war. This war and its aftermath, if it ever gets to that point will be a budget burden for a long time. Add to that while the US will be burdened by an ever increasing price of oil, Canada stands ready to pump an ever increasing amount of expensive(read a whole lot of high paying jobs and massive payroll income tax deductions) from its massive oil sands into the addicted US economy. Add to that the drain on the US economy by millions of undocumented workers who do not pay taxes ) and access social services. As I understand it the problem is now much worse than before. It just doesn’t look good for the future of America. I wonder, perhaps in my life time that we’ll have to build a fence. Nature does abhor a vacuum. ---
**Author:** ![ParentalAdvisory](https://avatars.discourse-cdn.com/v4/letter/p/53a042/32.png) [@ParentalAdvisory](https://boards.straightdope.com/u/ParentalAdvisory)\ **Post date:** [November 26, 2007, 3:11am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/16 "2007-11-26T03:11:47Z")
[QUOTE=The Flying Dutchman] …into the addicted US economy. [/QUOTE] I would wager to say that Canada is just _as_ addicted to oil as the US is per head. We use more because we have a bigger population. But per head, Canada is equal. ```auto Population Oil Consumption (bbl/day) Per person (bbl/day) US 303,321,825 20,730,000 14.6 Canada 33,081,362 2,294,000 14.4 ``` Population and Consumption numbers taken from: > **[Countries Compared by Energy \> Oil \> Consumption. International Statistics at...](https://www.nationmaster.com/country-info/stats/Energy/Oil/Consumption)** > > This entry is the total oil consumed in barrels per day (bbl/day). The discrepancy between the amount of oil produced and/or imported and the amount consumed and/or exported is due to the omission of stock changes, refinery gains, and other... > **[List of countries and dependencies by population](https://en.wikipedia.org/wiki/List_of_countries_by_population)** > > .mw-parser-output .smooth-pie{display:none;position:relative;width:100px;height:100px;border-radius:50%;background-color:#333;color:black;border:1px solid black}.mw-parser-output .smooth-pie div{position:absolute;transform-origin:left bottom;background-color:#655;color:black;top:0;left:50%;width:50%;height:50%;border-radius:0 500%0 0}.mw-parser-output .smooth-pie div.pie50{transform-origin:left center;height:100%;border-radius:0 100%100%0/50%}.mw-parser-output .smooth-pie .pie12-5{clip-path:p... ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [November 26, 2007, 3:42am UTC](https://boards.straightdope.com/t/why-exactly-is-the-dollar-losing-value-vis-a-vis-other-currencies/427660/17 "2007-11-26T03:42:37Z")
[QUOTE=zeno] Is it because the govt it printing money? But that would cause inflation and we don’t see that. I have a general understanding of these things, but I simply don’t understand what going on right now. [/QUOTE] Well, let’s get beyond some of the current affairs commentary and let me see if I can answer this succinctly, but with a little bit of economics primer. The value of a currency is determined by the supply and demand for that currency, as the value of anything is. The demand for dollars is set by three basic things: 1. People from overseas buying American things. To buy a new stereo from the USa, I must purchase American dollars to do so. 2. People investing in the USA, which is sort of like #1 in the sense that you have to buy American dollars to do it. 3. People and banks just buying American dollars out of pure speculation. The SUPPLY of money is determined by three factors that are all pretty much the reverse of the above: 4. Americans buying things from overseas, for which they must use American dollars to buy foreign currecy to buy those things. (Which drives up those foreign currencies; that’s why Canadian dollars are flying upwards. Yes, I realize Canada is not over a sea.) 5. American capital flowing out of the USA to invest elsewhere, 6. People and bank selling American dollars to speculate on other currencies. In every case, the trend over the last few years has been for the second four things to happen more, and the first four to happen less. Most prominently, Americans buy far more from other countries than they export, and the price of oil has exacerbated this trend. The US-Canadian rate spike is heavily dependent on this; Canada exports a lot of oil, as well as a substantial number of minerals, to the USA, and prices on such things are sky high now. Canadian mining and oil firms - this is literally true, as I have personally seen the sales orders - cannot buy equipment fast enough to haul the stuff out of the ground as fast as the buyers want it. Canadian dollars have to be bought in large quantities to buy this stuff, so the loonie jumps. It’s not so much a reflection of the U.S. dollar as it is a mad scramble to buy Canadian currency. There are other factors that tend to affects these things too: Interest rates, inflation, and general unease about an economy’s strength will all affect foreign willingness to invest in the American economy. Long term, however, what a lot of this may be is not so much weakness in the American dollar, but strength in foreign currencies. The rest of the world is getting richer and so it’s simply to be expected their currencies will strengthen. As you have pointed out, the drop in U.S. dollar exchange rates has not been accompanied by a sudden jolt in inflation - which is what you would expect if the U.S. dollar was actually shriveling, as opposed to it simply bieng the case that Euros, Loonies and Yen were getting stronger. Short term, it’s probably true that unease abiout the U.S. economy has created a quick drop in the U.S. dollar, in part because of the seemingly endless Iraq war - wars, contrary to popular belief, aren’t good for the economy most of the time - but also in large part due to the tremendous indebtedness of the U.S. citizen, a huge pile of debt that many are worried will crash at some point in the near future. All that said, however, those concerns will correct themselves; the war will end sooner or later, and the U.S. economy is already correcting the debt problem, presuming the government doesn’t do something retarded about it.