View From The Cab

By David Tollefson, Columnist

Again, I quote Urban Lehner, an exceptionally smart, well-travelled columnist currently with DTNag online:

Back in 1971, the world was suffering from a vast overabundance of dollars. American foreign investment and foreign aid coupled with inflationary U.S. government policies had flooded the world with greenbacks.

At the same time, the world—especially the United States—had too little gold. That was a problem because, unlike today, exchange rates didn’t float freely on markets. The U.S. was committed to redeeming dollars for gold at $35 an ounce. (Other nations’ currencies were pegged to the dollar at fixed rates.)

Foreigners were desperately trying to redeem dollars for gold or convert them to other currencies. With the U.S. increasingly unable to meet its commitment, speculators anticipated devaluation.

In August 1971, President Richard Nixon addressed the dollar crisis by suspending the dollar’s convertibility into gold. Despite a subsequent negotiated devaluation, speculators continued to attack the dollar. By 1973, the gold standard and fixed rates were history.

It was during the 1971 devaluation negotiations that Nixon’s Treasury Secretary John Connally made a deliciously cynical comment that is often quoted even today. Connally told foreign counterparts that the dollar is “our currency but it’s your problem.”

In an odd way, the dollar was also my problem. In 1971, I was the 24-year-old Minesweeping and Supply Officer on the U.S.S. Pivot. In light of the dollar crisis, the Nixon administration decided to give Pivot and several other U.S. Navy minesweepers to Spain as payment for base rights there in lieu of dollars.

In preparation, the Pivot’s captain tasked me with teaching our crew Spanish—a language I didn’t know and the crew turned out to be uninterested in learning. I made a desperate call to the Pentagon and found someone there who helped me put together a long list of minesweeper terms with Spanish translations.  The crews overcame the language barrier—sort of—by pointing at their mimeographed copies of the list.

These days, a strong dollar is in many ways everybody’s problem–It’s especially problematic for foreign countries.

International Monetary Fund research last year concluded that for emerging-market economies, “A 10% U.S. dollar appreciation, linked to global financial market forces, decreases economic output by 1.9% after one year, and this drag lingers for two and a half years.” Worst hit are developing countries that have borrowed in dollars; their currency principal and interest obligations balloon.

A stronger dollar is also a potential problem for the Federal Reserve Board and Fed Chair Jerome Powell if one of the reasons for it is higher interest rates. President-elect Donald Trump wants low rates and a weak dollar—and more control over the Federal Reserve. But if, as many economists and investors think, his policies prove inflationary, the Fed will be keeping rates high, which will tend to keep the dollar strong. Powell could find himself in Trump’s crosshairs again.

A stronger dollar would be no fun for U.S. exporting industries, very much including agriculture. It’s hard enough to compete with Brazil and other ag-exporting countries without the dollar further dulling American competitiveness.

Yet stronger is where the dollar seems headed. The U.S. Dollar Index has been in strong territory—above 100—since April 2022 and has been rising since late September. The betting on Wall Street is it will rise further in a Trump administration despite the president’s preferences.

By choosing hedge-fund manager Scott Bessent as treasury secretary, Trump has somewhat reassured markets: upward pressure on long-term interest rates and the dollar has eased a bit in recent days. The prospect of gigantic tariffs has been one of the triggers for Wall Street’s inflation fears. Bessent has spoken of tariffs less gigantically, saying they can be a negotiating tool and calling for coordinating them with U.S. allies.

Bessent has also, however, promised to maintain the dollar’s status as the world’s reserve currency. That’s a good thing for any treasury secretary to do: reserve-currency status affords the U.S. many benefits. Keep in mind, though, that it is one of the reasons the dollar is so often strong. With so much of the world’s trade and investments denominated in dollars, there’s almost always demand for the almighty buck.

Connally was half-right; the dollar is indeed our currency. But it’s not just their problem. It’s almost everybody’s.

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As I write this, the U.S. dollar is 105.982—has fallen by .15% in the past 24 hours. For context, the dollar index has climbed 6% since the early October of 2024, making its seventh straight weekly gain.

So, who has the strongest currency in the world? The country of Kuwait, with a value of one Kuwaiti Dinar equal to 3.25 U.S. dollars.

Why: guess what? It all comes down to oil. Kuwait has some of the largest oil reserves in the world, generating massive revenue for the country.

The British Pound is one of the oldest and most stable currencies in the world, with a current exchange rate of 1 GBP to 1.30 USD.

In comparison, the Euro (EUR) stands strong, with a value of 1 EUR to 1.05 USD.

The last on this particular list of 10 is the USD, but it is the most traded currency in the world. The strength of the U.S. dollar comes from the size and stability of the U.S. economy, as well as its status as the world’s primary reserve currency.

For us crop farmers, whose prices of corn and soybeans are down significantly this winter, we are quite dependent upon exports to China, Japan and other countries. Our greatest competitors are Brazil and Argentina, so the price of the dollar can factor into how we compete in the world markets. But that’s for another column. As you can tell, it’s complicated, with politics playing a part in it too.

Everybody’s talking about the weather, of course. Lake Minnewaska froze over the last day of November, and the other day at the west end of the lake, (before the weather turned windy and colder), there were two ice-sailboats having fun out there. Very entertaining!

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Please contact David Tollefson with thoughts or comments on this or future columns at: adtollef@hcinet.net