Former Federal Reserve Chairman Paul Volcker, who is chairman of President Barack Obama’s Economic Recovery Advisory Board, said the U.S. dollar is in danger of losing its role as a global benchmark currency.
“The growing question is whether the exceptional role of the dollar can be maintained,” Volcker told a gathering of New York civic leaders at the University Club of New York last night.
The decline of the U.S. economy, political gridlock at home, U.S. involvement in two wars and “festering” geopolitical issues in the Middle East and Asia have undermined the ability of the U.S. to influence global events, Volcker said.
Volcker offered no prescriptive solutions as he spoke in broad terms of the country’s loss of stature.
“This is a troubling time for America, a troubling time for the world,” Volcker said in remarks to Common Cause, a civic group. He said the U.S. is facing its most difficult economic crisis since World War II. “If ever there were a need for clear-headed, confident leadership, nationally and internationally, that time is now.”
The dollar weakened today against 14 of the 16 most traded currencies tracked by Bloomberg, trading at $1.31 to the euro. For 2010, the Dollar Index, which follows six of the biggest U.S. trading partners, is up 3.9 percent. Bloomberg Correlation-Weighted Currency indexes show America’s legal tender has kept its value almost unchanged since 1975.
Even as the U.S. remains the world’s pre-eminent nation by default, Volcker said, its example no longer inspires other countries to trust U.S. leadership. He said the U.S. is hobbled by lobbyists and an unwillingness to pass realistic budgets, as well as a civil service that he said has lost its ability to attract America’s best and brightest to public service.
“The time is gone when the U.S. could lay claim as the putative superpower with both unchallenged economic and military might,” Volcker said.
“The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world,” Volcker said. “Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate.”