In the month of March, the US dollar sank for one of the worst losses in the month of March, accounting for the worst loss in the past decades.
As per the measurement held for the dollar index, which was measured in relation to the currency value of 6 other countries, the US Dollar was measured to be at 95.883, approx 0.8% lower than the past year.
Again in the month of February, the dollar index was measured to be at about 2.4% lower than the previous year, standing as the worst loss of USD.
The below table demonstrates the index value of currency for other countries which were collected along with USD:
The Decline in US Dollar
The decline in the US Dollar refers to the loss in the value of the dollar in the Foreign Exchange Market as compared to other currencies in the world, which is also referred to as the fall of the index.
This also means that the conversion of euros to dollars will be higher as the value of euros will be higher in the market. This could also lead to the weakening of the US dollar and yen carry trade as the value of yen and other country’s currency will be stronger than a dollar.
The loss in USD can also further lead to loss of value in U.S. Treasurys which greatly affect the mortgage rates, in turn, lowering the demands of dollars.
Cause of the Sink of USD
One of the major causes which have led to the decline in the value of USD is the hidden possessions and assets by US customers.
In lieu of this, the Foreign Account Tax Compliance Act asked the foreign banks to reveal the asset information in order to find the taxpayers in the US who are hiding the government’s money.
On the other hand, in the year 2013, the British government invested USD13.1 billion in the capital markets of China, which accounted for London to be the first trading hub for Yuan.
This stood as one of the biggest causes as well as a threat to the index value of the dollar, as the Chinese government is trying to increase their holdings and replace the US dollar with Yuan.
As a result, when the value of the dollar was measured by Treasurys, Yuan, the currency of China, stood at a higher value than USD, resulting in the further sinking of USD in the financial market.
Further Picture of USD Loss
The sink for the US dollar can lead to various losses in terms of economy and import-export for the United States of America. With the lesser value of USD, fewer foreign goods can be purchased which will lead to fewer imports and higher inflation.
The oil and other contracts for foreign goods will increase due to the weakened value of the US dollar as the foreign countries would want to maintain their profit margin which will further lead to an increase in prices of oil and other products.
On the positive side, if the value of the dollar will sink, the US importers will be at profit as more and more products could be imported to other countries because of the cheaper prices. This could also strengthen the economic growth of the country.
However, the question is could this weakening of the US dollar lead to a dollar collapse?
Myths About Dollar Collapse
There has been a lot of myth in context to the weakened value of the dollar which comes to the notion that the dollar could collapse and other currencies such as the euro could take over.
However, this theory is far from the truth and it is quite impossible for the dollar to collapse. The very major reason is the backing up of the dollar by the US government which makes it the primary currency of the globe.
Also, the US dollar stands as the major medium of exchange and almost all of the foreign products are purchased and paid in US dollars.
The final reason for the dollar not collapsing anytime soon is that the US stands as the largest export market all around the globe. Due to this, there will be no incentives left for the other countries to change their export currency from the US dollar to other currencies.
The United States of America, one of the strongest countries around the globe in terms of economy, encountered the worst sink for its USD value in the past decades.
This might be due to taxpayers of the US hiding their possessions or due to China trying hard to make Yuan replace the US dollar.
Whatever be the reason, the weakening of USD could lead to a major decline in exporting value and an increase in prices of Oil and other foreign products. The weakening of the dollar has also led to some myths that the dollar could collapse in the upcoming future.
this is just a myth that is far from the truth, the sinking of USD this year is surely shocking for the United States and could lead to some or no effects in the future.