Farewell to the Dollar as the World's Currency of Choice

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Joseph E. Stiglitz

The domino effect is straightforward: Higher deficits spark market concerns over future inflation; concerns of inflation contribute to a weaker dollar; and both come together to undermine the greenback's role as a reliable store of value around the world. Right now, with so much unused capacity in the American economy and so much unemployment -- likely to persist for at least another year or two -- the more pressing worry is deflation (a general decrease in prices), not inflation. But as the economy eventually recovers, the possibility of inflation will loom, and with forward-looking markets, worries about the future often play out in the present. Anxieties about future inflation can lead to a weaker dollar today.

Joseph E. Stiglitz -- Farewell to the Dollar as the World's Currency of Choice - washingtonpost.com

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