|Panel Discussion on “The Future of the Dollar”|
|February 04, 2005|
|From L to R: Dr. Surjit S. Bhalla, Director, Oxus Research and Investments, Dr. Omkar Goswami, Chairman, CERG Advisory Pvt. Ltd., Mr. Nitin Desai, Honorary Professor, ICRIER, Mr. Srinivasan Varadarajan, Managing Director (Head of Markets), JP Morgan Chase Bank, Mumbai, and Dr. Arvind Virmani, Director & Chief Executive, ICRIER.
ICRIER organised a panel discussion on ‘The Future of the Dollar’ to assess the future of the US Dollar, in light of its overall decline of the dollar in international currency markets. It focussed on structural issues of the world economy, the role that the Dollar plays in it and how that role is evolving.
The discussion began with a presentation by Dr. Arvind Virmani, Director & CE, ICRIER on the evolution of the external value of the rupee over the past decade focussing on the linkages of the Real Exchange rate to productivity changes and differential inflation. Presenting a market perspective for the next year or so, Srinivasan Varadarajan, Director, J. P. Morgan Securities, (India) offered that the case for a weaker dollar had been building for quite sometime, the key factors being the impending correction in global imbalances, the need for the US to finance the “twin deficits” and a diminishing requirement for Asian reserve accumulation. Graphically illustrating the decline of the Dollar from Jan 2002 to Jan 2005, Omkar Goswamy, Director, CERG Advisory discussed the implications of the dollar slide for key currencies including Europe, Asia and China. Dr. Surjit Bhalla, MD, Oxus Investments emphasised that the role of interest rates must be taken in the context of growth if it is going to be taken as a tool of exchange rate and savings rate policy. Towards the end, Dr. Virmani distinguished between short-term movements in exchange rate, which emanate from expectational factors and manifest themselves through capital flows and long-term trends, which depend predominantly on relative productivity changes and are closely related to growth and competitiveness. Mr. Nitin Desai, Honorary Professor, ICRIER and Chair of the discussion, concluded, that the key imbalance is between the dollar and the Asian currencies, particularly the Chinese currency. For some time the present processes of dollar depreciation would continue.