Keeping a watchful eye on the FX market.

Photographer: Scott Eells/Bloomberg

America's Dollar, the World's Problem

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
Read More.
a | A

When officials from the Group of 20 nations gather in Turkey next week, the worsening currency wars will likely be a source of friction. The biggest question is whether the United States will finally get sick of being a casualty in the ongoing skirmishes.  

With nations from Canada to Australia to China to Denmark springing surprise rate cuts on investors in recent weeks, everyone has been in a race to the bottom, devaluing their currencies to boost exports and growth. Everyone, that is, except the U.S.

In the past year, the dollar has surged against the currencies of the U.S.'s trading partners. It's up more than 16 percent against the Federal Reserve's trade-weighted index of 26 other currencies, ranging from the euro (which accounts for 16 percent of the basket) to Switzerland (1.73 percent) to Colombia (0.66 percent):

Not surprisingly, U.S. exporters are squealing. Procter and Gamble, the world's biggest consumer products maker, last week blamed a 31 percent drop in second-quarter profits on what it called the "unprecedented" pressure in the foreign exchange market. "Virtually every currency in the world devalued versus the U.S. dollar," complained Chief Executive Officer A.G. Lafley. Here's the table of how the dollar's competitors have done in the past year:

Photographer: Gilbert, Mark

Tony Sagami at investment advisory firm Mauldin Economics has argued that the members of the Standard & Poor's 500 index rely on overseas sales for 46 percent of their revenue and almost half of their profits. Companies from Pfizer to McDonalds to DuPont to Microsoft are already bemoaning the damage done to their earnings; even the mighty Apple, which is increasingly proactive in its efforts to hedge against currency shifts, would have had better profits "absent fierce foreign-exchange volatility," according to CEO Tim Cook.

The nascent U.S. economic recovery, one of the few bright spots in an increasingly gloomy economic environment, risks being snuffed out if the ascending dollar crushes exports. The U.S. trade deficit has already swollen to its widest in two years, with figures this week showing it expanded by 17.1 percent in December to reach $46.6 billion:

U.S. Treasury Secretary Jack Lew said this week he's ready to retaliate if he sees other countries pursuing currency policies he deems unfair. But sympathy for the U.S. may be in short supply. Raghuram Rajan, India's central bank chief, said this week that with the Fed looking increasingly like the only central bank with any appetite for raising rates this year, the U.S. "will have to accept some appreciation of the dollar simply because it's the first one out of the box."

In 1971, John Connally, Richard Nixon's Treasury secretary, told the world "it's our currency, but it's your problem." More than four decades later, the U.S. currency is the U.S.'s problem. Depending on how the country reacts, the currency wars may be just beginning.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at

To contact the editor on this story:
Cameron Abadi at