American investors and business people have lots to worry about these days–from terrorist threats and looming warfare to corporate scandals that won’t quit and stock market indexes that bounce around like pinballs. Fortunately the recent decline in the foreign-exchange value of the dollar shouldn’t be on the list, despite some alarmist headlines.
First, although the dollar has declined sharply against other major currencies during the past few months, it is not low by historical standards. On the contrary, it’s trading at exchange rates well above those prevalent in the 1990s. The real trade-weighted exchange rate of the dollar was 108.7 in July, compared with an average for the 1990s of 92.1 (1990 is the baseline). And at a recent 116 to the Japanese yen, the dollar was actually a little higher than its average exchange rate for the past ten years.
