us dollar_presentation final1
TRANSCRIPT
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 1/82
CAN US DOLLAR MAINTAIN ITS SUPREMACY AS WORLD CURRENCY?
GROUP MEMBERS:
LOW MEI LENG GM 03230
SHARIENA ADILAH ABDUL RAHIM GM 03117
ABDUL HARIS ABDUL MALIK GM 02766
NUR FADHLINA ILHAM GM 02820WONG CHEE HAUR GM 03111
EFFAHRIN MOHD FARID GM 03170
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 2/82
AREAS OF DISCUSSION:
o HISTORY OF US CURRENCY
o WHY US DOLLAR STILL MAINTAIN?
o INTERNAL CHALLENGESo EXTERNAL CHALLENGES
o RECOMMENDATION
o IS THERE ANY ALTERNATIVE CURRENCY?
o CONCLUSION
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 3/82
HISTORY OF US CURRENCY
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 4/82
HISTORY OF CURRENCY
Barter System
• Goods exchange with goods
• Started way back in 6000BC
Limitations
• Double Coincidence of Wants
• Absence of Standard Value
•
Indivisibility of Commodities• Absence of Store of Value
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 5/82
EVOLUTION OF CURRENCY
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 6/82
US DOLLAR HISTORY
The U.S. dollar was created and defined by theCoinage Act of 1792.
The value of gold or silver contained in the dollar was then converted into relative value in theeconomy for the buying and selling of goods.
The Sterling Area
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 7/82
GOLD STANDARD
Gold certificates were used as paper currency in the UnitedStates from 1882 to 1933, these certificates were freely
convertible into gold coins.
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 8/82
OTHER MAJOR CURRENCY
Euro Currency Renminbi or
Yuan Currency
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 9/82
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 10/82
)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 11/82
a)US Dollar being used as Invoice Currencies in
International Trade Transactions
Both US dollar and euro are
extensively used in
international trade
transactions, with the dollarstill the dominant currency
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 12/82
b) US dollar as international currency transaction
US Dollar has an 86 per cent share in the daily currency transactions of some
$3.2 trillion around the world
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 13/82
c) Dollar as international reserve currency
o Central banks the world over, find it difficult to reduce the share of dollar inthe reserves held by them.
o Since the majority of the countries export so much to the US, there is a regular
flow of dollars into the coffers of their central banks.
o This flow can be checked only if these countries stop exporting to
the US.
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 14/82
d) US economic factor
US strength comes from
economy's size,
the flexibility of labor and product markets,
prospect for higher productivity growth and
favorable investment returns over the medium term
As long as inflation is moderate and stable, financial markets sound andunfettered, and government spending efficient and sustainable,
Standard & Poor's Ratings Services expects the US to continue enjoying
the benefits a key currency brings and to maintain the 'AAA' rating.
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 15/82
e) Banking and Capital Market
• A century ago, there was little question about what money was. It
was gold, or to be exact, it included national currencies like dollars and
pounds, but only to the extent they were convertible into gold. There
was but one real money.
• Now there are dozens and dozens of national currencies, none of
them tied to gold. But there is a hierarchy of currencies that in practicesignificantly reduces the real number. That hierarchy is based not on
relative value, which can and does fluctuate, but on their function in
the world economy. The U.S. dollar is clearly No. 1.
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 16/82
f) Problem of Eastern Europe
• International bank lending to Eastern Europe started to grow briskly only
when the Federal Reserve wanted to save the world from deflation in 2001-2via its policy of permanently low interest rates.
• But until about the middle of 2007, lending to the regions had been growing
in line with deposits from the region. Only after the subprime crisis broke in
the summer of 2007 did net lending to the region take off.
• This suggests that the total ‘at risk’ from the region should be around thearound $250 billion in quick credits granted since then (the last creditors take
typically the first losses). It is generally assumed that the bulk (90%) of this
exposure is to EU banks.
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 17/82
g) US Dollar is safe haven
• The U.S. dollar (USD), the global market's safe-haven and reserve
currency, showed once again today that the bullish uptrend it is
currently in shows no signs of stopping and turning around anytime
soon.
• According to Bloomberg, "The dollar rose to a three-year high against
the currencies of major U.S. trading partners as the plunge in the yenand Swiss franc left the world’s reserve currency the only refuge from
economic turmoil.
• There are no alternatives to the dollar right now,' said Geoffrey Yu,
London-based strategist at UBS AG, the world’s second-biggest currencytrader. 'Investors see the rest of the world collapsing, and the yen is no
longer a safe haven.'”
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 18/82
• Japan's economy shrank at a 14.2 percent annual pace in the first
quarter - better than first thought, but still its worst quarterly contraction
yet as trade wilted amid the worst global recession in decades
• Exports to the US fell 45.4 percent in May, marking the 21st straightmonthly decline, the finance ministry said. US-bound auto exports
nosedived 54.8 percent - grim news for major Japanese auto makers such
as Toyota Motor Corp and the parts suppliers that depend heavily on the
American market. Japanese shipments of auto parts to the US were down
47.8 percent.
h) Japan export is dependent on US consumer
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 19/82
i) US Dollar as international oil transactions
For the past 30 years the US Federal Reserve has printed hundreds of
billions of oil-backed petrodollars, which US consumers provide to othernations by purchasing imported goods. Then those nations use these
dollars to purchase oil/energy from OPEC producers. These billion of
surplus petrodollars are recycled from OPEC and invested back into the
US via Treasury bills or other dollar-denominated assets, such as US
stocks, bonds and real estate
The structural imbalances in the US economy are sustainable as long as:
• Nations continue to demand and purchase oil for their energy /
survival needs
• The world’s monopoly currency for global oil transactions remain the
US Dollar and
• The three internationally traded “crude oil markers” remain
denominated in US Dollars.
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 20/82
Overall view
There are three fundamental characteristics that a reserve currency must have:
• it must inspire confidence,
• it must be fully convertible into other currencies, and
• it must have a high degree of liquidity.
Additionally, why US still maintaining their position is because:
• Military control of the world’s remaining oil and gas reserves, their
associated pipelines and at the sea and land transit routes for these
resources
• Financial control of global economy. Control of world’s economy can
be maintained if dollar remains world’s premier reserve currency via
monopoly petrocurrency states and the attending macroeconomics
benefits
• 65% of the international trade today conducted in dollar
• Maintenance of petrodollar recycling system - allow Federal Reserve
expand global credit to enforce US financial control and continue
massive debt-financing to pay for US military control
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 21/82
INTERNAL CHALLENGES OF US DOLLAR
o US debt increasing
o Slowing economic growtho Larger current account deficit (also known as trade deficit)
o Money supply and Inflation
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 22/82
US debt increasing
• US national debt has been increasing through out the years.• Nearly one half of US debt was for crude oil and the rest is foreign
investors holding US treasuries securities
22
$0
$2,000,000,000,000
$4,000,000,000,000
$6,000,000,000,000
$8,000,000,000,000
$10,000,000,000,000
$12,000,000,000,000
$14,000,000,000,000
283236404448525660646872768084889296000408
Year
U.S. National Debt
U.S. National Debt
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 23/82
• Debt might also increase due to
- Financial bailout for subprime debt
- US consumer and government spending behavior
• Increasing levels of debt cause growing concern that the US government
may start to default on its debt.
• It would cause shockwaves throughout the global financial situation andpeople would sell dollars.
• Government may also just increase the money supply to finance the
growing national debt because they can’t sell any more bonds.
• This would increase the money supply and inflation and indirectly causes
depreciation in the value of the dollar.
23
US debt increasing
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 24/82
• US economic growth was greatly impact due to financial crisis 2008.• US GDP growth rate decreases to as low as -4% on year 2008.
• Contributing factor :
- Falling of US consumer confidence level
- Credit crisis issue
- Housing market slump
24
Slowing economic growth
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 25/82
Falling of US consumer confidence level• US consumer confidence drops significantly low on year 2008 due to the
financial crisis 2008.
• This indicates that consumers are more conscious on their spending since
some might have loose their job.
• There will be less demand for dollars and put downward pressure to US
dollar.
25
Slowing economic growth
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 26/82
Credit Crisis issue
• Credit crisis - financial institutions redefine the riskiness of borrowers,
making it difficult for debtors to find creditors.
• Due to the subprime mortgage crisis which started on 2007, the credit
crisis and banking losses starts to emerge. (Citigroup, Merrill Lynch)
• At least 100 mortgage companies in US have either shut down, suspended
operations or tried to seek for government bail out. (Bear Sterns,
Fannie/Freddie)
• This will put downward pressure on the dollar because they are forcing the
US government to borrow more to bail them out.
26
Slowing economic growth
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 27/82
Housing market slump
• Subprime mortgages gained popularity and started to increase in
the early 1990s.
• The housing price crash started on 2006 due to the effect of
repossession was too great.
• The high repossession by banks was due to a lot of borrower
default on their payment.
27
Slowing economic growth
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 28/82
• This property crash has drag down the economy growth.
• Due to this property crash, it has affected the US financial market and
indirectly discouraging foreign investors from buying US dollars.
.
28
Slowing economic growth
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 29/82
• Trade deficit = imports > exports (net outflow of money)
• US current account deficit started to increase since 1990.
• In 2008, the current account deficit was over $700 billion.
29
Larger current account deficit (trade deficit)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 30/82
• Trade deficit increases due to:
- Growing trend on consumer and government spending and low
personal savings.
- Increase demand in import goods due to cheaper in price
- Increase in oil price
30
Larger current account deficit (trade deficit)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 31/82
• Debt build-up cannot continue forever.
• Eventually it will become too large that foreigners will be worry on their
ability to service and pay back this debt.
• Evidence show Asian bankers are no longer so confident in the American
economy.
• They are seeking to divest from the dollar and reduce their dollar
holdings.
• As this occurs the dollar will have to fall as there are insufficient buyers
of US debt.
31
Larger current account deficit (trade deficit)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 32/82
Inflation : - rise of price level of the goods and services.
- money supply grows faster that the physical output
of goods and services.
• Since 1980s the inflation starts to drop and gradually consistent
through out the twentieth century. But the US money supply
across twentieth century has been increasing.
• Theoretically, with the drastic increase of money supply faster
than physical output of goods and services, price level will
increase. However, in 2008 US see a fall in price level. =>
Contradict with theory
32
Money Supply and Inflation
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 33/82
• Money supply depends on the velocity of circulation. (how many times it
changes hand)
• The problem is that the velocity of circulation is falling faster than the
Federal Reserve can increase the monetary base. (due to financial crisis)
• With the rising unemployment, falling investment and falling
consumption, people are more cautious on their spending.
• The falling consumption has cause less demand on dollar and this could
decline the US dollar value.
33
Money Supply and Inflation
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 34/82
EXTERNAL CHALLENGES OF US DOLLAR
o Market condition (crisis)
o Switching away from US dollar issueso Refusing to use Petrodollars (US dollar) by petrol exportation country
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 35/82
Market condition
Global economic Crisis 2008
• Great depreciation with its global effects impact the economy around the
world.
• With declining image in Europe, Asia and elsewhere, the value of the
dollar is still maintaining strong.
• Value of the dollar supported by the mercy of countries with large foreign
reserves as China Japan, oil producing nations, etc. (even many Americansare trying to diversify their dollar)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 36/82
Market condition
• US under strong pressure in handling of the economy, which used to beeasily managed just by printing dollar bills (Treasury Bills)
• Currently, future value of the dollar is monitor closely by other countries
and regions.
• Their anxiety will not go away too easily, meaning the instability and
concerns regarding the international currency system will basically remain
as a concern to them.
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 37/82
Oil crisis 2007-2008
• During 2007 and 2008, the US dollar continue to weaken when the oil
price increases due to the oil spike and US Federal monetary policy cycle.
• Oil price increase -> less demand for crude oil -> less demand for US dollar-> US dollar will weaken
• Dollar was already in a downtrend due to the loosening of monetary
policy (cutting interest rates).
Market condition
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 38/82
Market condition
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 39/82
Switching away from US dollar issues
• Many countries are diversifying away from dollars into euros.
• Russia threatened to price its huge oil and gas exports in euros
instead of dollars.
• Part of a strategic shift to forge closer ties with the EU, and to hedgeagainst the falling dollar.
• Russia is the world’s second largest oil exporter.
• Sweden cut dollar holding, from 37%to 20%, with the Euros share
rising to 50%.
h f d ll
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 40/82
Switching away from US dollar issues
• United Arab Emirates (UAE) converts Dollars to Euro. The declining
US dollar has caused UAE to convert 8% of its $25 billion foreign
exchange reserves into Euros.
• Kuwait and Qatar have indicated that they plan to make similarmoves.
• Other countries, including Russia, Venezuela, Indonesia and Iran
also have decided to cut their dollar reserves.
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 41/82
Refusing to use Petrodollars
• Petrodollar is a United States dollar earned by a country through the saleof petroleum.
• Petrodollar warfare also known as oil currency wars are raising concern.
• Most countries rely on oil imports, they are forced to maintain large
stockpiles of dollars in order to continue imports ,so that demand of dollar
remain high.
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 42/82
Refusing to use Petrodollars
US TRADE DEFICIT (US) EURODOLLARS OIL CONSTRACTS
Foreigners exchange
their exports for our
US dollar
Foreigners hold US
dollars for repayment &
purchases
Foreigners exchange their
eurodollars for crude oil
THE UNITED STATES THE HOUSE OF SAUDI PETRODOLLARS
Direct foreign
investment in T-bills &
capital markets
Saudi Arabia exchanges
petrodollars back to the
US
OPEC crude oil producers
accumulate petrodollars
THE PETRODOLLAR EXCHANGE
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 43/82
• Political enemies of the US have some interest in seeing oil denominated
in euros or other currencies .
• EU will also gain same benefits as US if the euro replaced the dollar.
• US fear Organization of the Petroleum Exporting Countries (OPEC) will
switch its international transactions from a dollar standard to a euro
standard .
Refusing to use Petrodollars
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 44/82
Countries refuse to use US dollar as petrol dollar
• Iraq actually switch US dollar to Euro in Nov. 2000 .
• Iran has now opened an oil bourse which does not accept U.S. Dollars .
• Mid-2006 Venezuela indicated support of Iran's decision to offer global oiltrade in the euro currency.
Refusing to use Petrodollars
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 45/82
RECOMMENDATION
R d ti
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 46/82
US should focus more internally to make sure they are fundamentally strong
and remain as competitive advantage in order to overcome the challenges face
by US dollar.
Here are some recommendations:
• Debt Restructuring
• Strengthen economic growth in maintaining its global responsibility
• Strengthen regulatory policy
46
Recommendation
R d ti
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 47/82
a) Debt Restructuring
• US should restructure their debt financing as not to be dependent on
foreign investors. (Minimize borrowing/outflow of money)
encourage their citizens to spend money to buy local products & services
encourage US manufacturers to produce made in US products encourage exports to reduce trade deficit
• Suggestion might fail :
- US companies are not able to export product and services of thesame value
- US will definitely have to rely heavily on importing crude oil means it
may always be in deficit
47
Recommendation
Recommendation
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 48/82
b) Strengthen economic growth in maintaining its global responsibility
• US has losses its seat to European Union as world largest economy
• Short term solution : US bailout and stimulus package
• Long term suggestion : maintaining a large reserve currency, open
credit markets, efficient financial market, strong
and diversified financial institutions and a central
bank
• Suggestion might fail :- EU consist of 27 countries (might further increase), Euro had been
performing well against US dollar and have strong fundamental economic
=> Difficult for US to become world largest economy
48
Recommendation
Recommendation
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 49/82
c) Strengthen regulatory policy
• US should have strong regulatory policy in order to avoid unfavorable
events to happen (Enron Accounting scandal, subprime loan mortgage
crisis => affect US dollar value)
• Suggestion might fail :
- Current regulatory policy will only be effective for certain period of time
49
Recommendation
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 50/82
“Rising of New Economic Power”
CAN THESE ALTERNATIVE CURRENCY REPLACE US$?
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 51/82
The Japanese Yen (¥),
Chinese Renminbi &
Euro
JAPANESE YEN & CHINESE YUAN
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 52/82
JAPANESE YEN & CHINESE YUANRole to the global economy
Economy Japan China
Economy 2nd largest after US (US$
14.3 trillion)
3rd largest after US and
Japan
GDP (Nominal) US$ 4.28 trillion (2007) US$ 4.4 trillion (2008)
Gross Foreign Exchange
Asset
US$ 5 trillion (2008)
(hold 21% of foreignheld US treasury)
US$ 2.3 trillion
Other Real Economic Growth
(average):
1960s – 10%
1970s – 5%
1980s – 4%
Current Account
Surplus:
2006 – US$ 250 billion
2010 – US$ 300 billion
JAPANESE YEN
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 53/82
Japanese Yen
Yen (JPY) Exchange
Rate
Japan as Reserve
Currency
Failure of Yen asInternational Reserve
Currency
Benefits of weak Yen
Value
CharacteristicsDeterminants of Yen
(JPY) value
Trail of Yen (JPY)
JAPANESE YEN
JAPANESE YEN
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 54/82
Japanese Yen
Characteristics
• not a major power
• sensitive to changes inexchange rates
• country is quite smalland short on naturalresources
• yielding a very lowinterest rate
JAPANESE YEN
JAPANESE YEN
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 55/82
1970s –
• ¥271 per US$1 in 1973, ¥290 to ¥300between 1974 and 1976; surpluses up to¥211 in 1978; dropping to ¥227 by 1980.
1980s –
• From ¥221 in 1981; dropped to ¥239 in1985
Affect of Plaza Accord 1985 –
• ¥239 per US$1 in 1985, the yen rose to apeak of ¥128 in 1988; of ¥123 to US$1 inDecember 1992
• Began to ‘Internationalize the Yen’ *
Post-Bubble / Crisis
• low of ¥134 to US$1 in February 2002
Japanese Yen
Determinants of Yen (JPY) valueTrail of Yen (JPY)
Yen is determined in foreign exchangemarkets by the economic forcesof;
a) The supply of the yen in themarket is governed by the desireof yen holders to exchange theiryen for other currencies
b) The demand for the yen is
governed by the desire of foreigners to buy goods andservices in Japan and by theirinterest in investing in Japan
JAPANESE YEN
JAPANESE YEN Macroeconomic trend
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 56/82
Year GrossDomestic
Product
US DollarExchange
InflationIndex
(2000=100)
Per Capita
Income(as % of
USA)
1955 8,369,500 ¥360.00 10.31
1960 16,009,700 ¥360.00 16.22
1965 32,866,000 ¥360.00 24.95
1970 73,344,900 ¥360.00 38.56
1975 148,327,100 ¥297.26 59.00
1980 240,707,315 ¥225.82 75 74.04
1985 323,541,300 ¥236.79 86 63.44
1990 440,124,900 ¥144.15 92 105.82
1995 493,271,700¥
122.78 98 151.552000 501,068,100 ¥107.73 100 105.85
2005 502,905,400 ¥110.01 97 85.04
Above is the exchange rates of
JPY for 2009
Value
Appreciates
And as at September 10, 2009 – the US Dollar exchange was
at¥ 91.855
JAPANESE YEN – Macroeconomic trend
JPY Foreign Exchange Reserves
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 57/82
JPY Foreign Exchange Reserves
Japan's foreign exchange reserves consist mainly of securities and deposits denominated in foreign
currencies, gold, and reserve positions and special drawing rights at the International Monetary
Fund.
Yen as Reserve Currency
• Japanese Yen is widely used as a reserve currency after the US dollar, Euro and the Pound Sterling.
• Classified as ‘undervalued’ though Japan’s current account surplus
JAPANESE YEN
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 58/82
Massive asset
bubble in Japan in
1989
Reliant on growth
in both the US and
Europe
Economy remains
heavily dependenton exports
Japan's banking
sector and national
balance sheet
Currency
intervention by the
Bank of Japan
(BoJ)
High Volatile &
expensivetransaction costs
Failure towards
being Int. ReserveCurrency
The position of yen as the reserve currency was further pushed aside with the rise of the Euro in 1999.
JAPANESE YEN
Benefits of Weak Yen
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 59/82
Benefits of Weak Yen
Weakness of the Japanese Yen over the past few years has lent significant
support to the economy;
• Export become cheaper
• Import become expensive
Japanese corporations do a great deal of business abroad
• Depreciates, these hedging operations can become sources
for additional revenue; Growth, wages and unemployment
should improve.
China Chinese Yuan (Renminbi)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 60/82
China – Chinese Yuan (Renminbi)
• Microeconomic Trend
• Macroeconomic Trend• Inflation
• Yuan/ Renminbi
– Revolution of RMB towards InternationalCurrency Reserve
– Yuan RMB as International Reserve Currency» Impact on US economy
– Failure of RMB as International CurrencyReserve
» The use of Renminbi in International
Transactions• Measure for China
China – Chinese Yuan (Renminbi)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 61/82
Year Gross
domestic
product
US dollar
exchange
Inflationindex
(2000=100)
1955 91,000 2.46 19.2
1960 145,700 2.46 20.0
1965 171,600 2.46 21.6
1970 225,300 2.46 21.3
1975 299,700 1.86 22.4
1980 460,906 1.49 25.0
1985 896,440 2.93 30.0
1990 1,854,790 4.78 49.0
1995 6,079,400 8.35 91.0
2000 9,921,500 8.27 100.02005 18,308,500 8.19 106.0
2007 25,730,600 7.62 112.6
Micro & MacroEconomic Trend
China – Chinese Yuan (Renminbi)
China – Chinese Yuan (Renminbi)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 62/82
Inflation
By January 2008, the inflation rate
rose to 7.1%, highest inflation rate
since 1997. But in Oct 08, it falls to6.6%
China – Chinese Yuan (Renminbi)
China – Chinese Yuan (Renminbi)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 63/82
Revolution of RMB towards International Currency Reserve
China started overhauling the global monetary system by boosting the useof an alternative to the U.S. dollar. It started from the concern about its
investment if the dollar should collapse.
Since the crisis in
2008, RMB has been
appreciating together
with the Euro.
China – Chinese Yuan (Renminbi)
China – Chinese Yuan (Renminbi)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 64/82
Yuan RMB as International Reserve Currency
The use of Renminbi in international trade and financial transactions is limited
when compare to major currencies such as US dollar, the Euro, Pound Sterling
and even the Japanese Yen.
When Yuan appreciates:• Bankruptcy of export-oriented enterprises in China’s costal cities
• Massive unemployment
• People Republic of China (PRC) government to buy fewer United States treasury
bonds, causing bond prices to fall and bond yields to rise, hampering
improvement in the U.S. economy.
China – Chinese Yuan (Renminbi)
China – Chinese Yuan (Renminbi)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 65/82
Yuan Appreciation –
Impact to the US
causing stagflation, a
collapse of US oil
dependant industries,
massive unemployment
and other direct
economic consequences
not improve the US's
international balance by
reducing its trade
deficit.
Commodity trade aside,
the renminbi's
appreciation will also
hurt the US in capitalaccount items
US has more to gain if China maintains the renminbi at a stable level.
China Chinese Yuan (Renminbi)
Chinese Yuan (Renminbi) vs Dollar
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 66/82
Challenges in
its economy
China's banking
system remains
opaque and risk-
laden
Lack of necessity
Driving forces
in exports
Poor
transparency
Governmentrestrictions
Failure of Yuan
Chinese Yuan (Renminbi) vs Dollar
Chinese Yuan (Renminbi)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 67/82
The use of Renminbi in International Transactions
Chinese Yuan (Renminbi)
Chinese Yuan (Renminbi)
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 68/82
Measure for China
• have to ease restrictions on money entering
and leaving the country, make its currency
fully convertible for such transactions,
continue its domestic financial reforms and
make its bond markets more liquid
• needs to curb its excessive dependency on
external demand
• focus on initiating internal demand—the
only effective way to build a strong nationaleconomy
Chinese Yuan (Renminbi)
The EURO
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 69/82
The EURO
The EURO
European
Union (EU)
European
Monetary
Union
(EMU)
Euroland
Economic
Growth
Eurocurrency
•Fraction as Reserve Currency
•Euro Dominant
•International Role of Euro
- Euro Performance in Trade
Invoicing- Euro Performance in Financial
Market
•Factors determine the ultimate
of the euro as a reserve
currency
•Benefits of the euro arise to
worldwide
•The Drawbacks
European Union (EU) European Monetary
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 70/82
Union (EMU)
Growth of the European Union since the Treaty of Rome, 1957
Member
State
Totals:
Year of entry into the EU
1957 1973 1981 1986 1995 2004 2007
Belgium
France
Germany
Italy
LuxembourgThe
Netherlands
Denmark
United
Kingdom
Ireland
Greece
Portugal
Spain
Austria
Finland
Sweden
Cyprus
Czech
Republic
Estonia
HungaryLatvia
Lithuania
Malta
Poland
Slovakia
Slovenia
Bulgaria
Romania
6 9 10 12 15 25 27
A country can not issue a Euro unless it is part of the EU. A country can be in the
EU and allow not use the Euro (only the UK, and Denmark have a derogation
privilege). A country can be outside the EU and still use the Euro as their official
currency.
European Monetary
Union (EMU) had to
fulfill the followingconvergence criteria:
1)Price stability .
2) Long-term interest
rate.
3) Government budget
deficits. Not more than 3% of Gross Domestic
Product (GDP),
4) Total government
debt . No more than 60%
of GDP, exchange rate
stability.
5) Central bank
independence
Only 16 out of 27 EU
members.
Euroland Economic Growth
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 71/82
Member State
sorted by GDP
GDP in
billions
of US $
(2008)
GDP
% of EU
(2008)
Annual
change
% of GDP
(2008)
GDP
per capita
in PPP US$
(2008)
Public Debt
% of GDP
(2008)
Deficit (-)/
Surplus (+)
% of GDP
(2008)
Inflation
% Annual
(2008)
European Union 18,493.0 100.0% 0.9 30,393 61.5 -2.3 3.7
Germany 3,653.3 19.8% 1.3 35,441 65.9 -0.1 2.8
France 2,843.1 15.4% ? 34,208 68.0 -3.4 3.2
Italy 2,330.0 12.6% -1.0 30,580 105.8 -2.4 3.5
Spain 1,622.5 8.8% 1.2 30,620 39.5 -3.8 4.1
Netherlands 862.9 4.7% 2.1 40,431 58.2 1.0 2.2
Belgium 507.1 2.7% 1.1 36,235 88.6 -1.2 4.5
Austria 418.7 2.3% 1.8 39,634 65.2 -0.4 3.2
Ireland 290.7 1.6% -2.3 42,539 43.2 -7.1 3.1
Finland 273.1 1.5% 0.9 36,217 33.4 4.2 3.9
Portugal 248.9 1.3% 0.0 22,189 66.4 -2.6 2.7
Slovakia 88.9 0.5% 3.5 22,040 27.6 -2.2 3.9
Luxembourg 57.0 0.3% -0.9 82,306 14.7 2.6 4.1
Slovenia 53.3 0.3% 3.5 29,472 22.8 -0.9 5.5
Latvia 35.8 0.2% -4.6 17,071 19.5 -4.0 15.3
Cyprus 24.5 0.1% 3.7 29,829 49.1 0.9 4.4
Malta 8.4 0.1% 2.7 23,760 64.1 -4.7 4.7
EMU
Euroland Economic Growth
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 72/82
‘Euro GDP Growth Rate’
Eurocurrency
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 73/82
y
• Besides 16 countries mentioned above, the currency is also used in afurther five European countries
• November 2008, with more than €751 billion in circulation, the euro isthe currency with the highest combined value of cash in circulation in theworld
• The introduction of the euro was signed to answer the challenges of globalization
• Sensitive to changes in interest rates
Fraction of Euro as Currency Reserves
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 74/82
y
• The Euro became a reserve currencysince Jan 1, 1999 with $1.18 p/euro.
• Euro has overpasses other countrieswith their official foreign exchangereserve of 18% in 1999 to 25.5% in2006 and 28% by the early 2008
(Figure on the right)
• The US dollar’s made up 71.5% of itsforeign reserve, the largest shareduring period 1987 – 2006 but in2007 it shrunk nearly to 65.6%.
• The euro remains underweight as a reserve currency in advanced economies whileoverweight in emerging and developing economies: according to the IMF
Euro – Flexible Exchanges Rates
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 75/82
g
Exchange rate at start is put to USD1;Green
Jan-1999: €1 = $1.18; in Jul-2008: €1 = $1.57Red
Jan-1999: €1 = ¥133; in Jul-2008: €1 = ¥168Blue
Jan-1999: €1 = £0.71; in Jul-2008: €1 = £0.80
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 76/82
Ultimate Euro
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 77/82
1. The euro did not follow the dollar correlation
2. During the crisis recovery, Euro money and debt markets are deemed to
be as attractive as dollar markets
3. Opportunity for the Euro
4. Substantial progress in euro financial market integration
5. Exchange Rate Policy advantage
6. Flexible exchange rates
‘A single currency makes the euro area an attractive region for third
countries to do business, thus promoting trade and investment.’
Euro Drawbacks
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 78/82
The EURO Drawbacks
Single Currency Policy Low growth and relatively highinflation
Political shock Economic shocks
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 79/82
CONCLUSION
Can US $ maintain its supremacy as world currency?
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 80/82
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 81/82
Yes,
The US$ will continues to reignsupreme as International Currency
Reserves
7/29/2019 US Dollar_presentation Final1
http://slidepdf.com/reader/full/us-dollarpresentation-final1 82/82
THANK YOU