November 22–28, 2004
Volume 8, Number 14
By Jeremy Rusinek, Sarah Brun, and Madeline Koch
G8 Research Group
In This Issue:
Declining U.S. Dollar
Iraq on the Agenda at Sharm El-Sheik
Also in the G8 News
Upcoming G8 Meetings
In its seventh week of decline, the U.S. dollar has had an uneven impact on global financial markets. The slide is caused primarily by the U.S. double deficit, which is a large government debt combined with large nationwide consumer debt due to overspending on foreign goods.
Free floating currencies such as the pound, the Canadian dollar, the Swiss franc and particularly the euro have been hard hit by the declining dollar. The Americans’ attempt to fix their trade balance through benign neglect of their currency has hit Europe the hardest.
“In the near term I do not see anything that can stop the euro appreciation, and there is no doubt that Europe will suffer from that,” said Bank of America economist Lorenzo Codongo.
The yen, normally insulated by the government, has also been in decline. Japan foreign reserves include more than US$1 trillion, but the yen has continued to gain on the dollar. Some analysts say that Japan is close to a recession due to excessive strength of its currency.
The main source of the U.S. current accounts deficit is China, which has yet to modify its peg to the U.S. dollar to relieve the pressure. China has been under intense pressure from G7 countries to move to a free-floating currency, now that its economy is gaining so much strength. The main obstacle, however, is China’s antiquated financial sector, which does not meet world norms. There are rumours that in the next year China will move to a peg against a basket of currencies, including the euro, and will move to an entirely free-floating currency in five years, but there is no hard evidence for this timeline.
Another influence on the declining U.S. dollar is the continued threat of a slow sell-off of foreign reserves, particularly by Japan, China and Russia. This would push the dollar even lower.
Sources: AFP, Financial Times, Sunday Telegraph
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The Iraqi elections were on top of the agenda as representatives from the G8, the United Nations, the European Union, the Arab league, the Organization of Islamic States and China met in Sharm El-Sheik, Egypt on November 22–23. Iraq plans to hold elections on January 30, 2005.
As a result of the many violent uprisings in Iraq, there have been many questions about whether the country is ready for democratic elections, a primary concern being possible low voter turnout. The UN Security Council resolution 1546 calls for elections no later than the end of January 2005. Those leaders who attended the conference were confident in the elections taking place as scheduled. United States secretary of state Colin Powell emphasized that “there is a solid consensus that we must move forward and have these elections.”
Also on the agenda was the withdrawal of American troops, a more contentious issue. According to the communiqué endorsed by the conference, the Iraqi government will decide when the troops should leave, because the mandate is not “open ended.” France and Syria stressed the necessity for a definite date by which the American troops are to leave the country.
“That was one of the many issues that was insisted by many delegations here, that there should be a timetable for the withdrawal of foreign forces from Iraqi territory,” said Iranian foreign minister Kamal Kharrazi.
The U.S. says it will leave once stability exists in the country, pointing to the fact that the neighbouring nations, with emphasis on Syria, must do more to officially denounce terrorist groups within Iraq and secure their borders from weapons flow. A meeting discussing these issues between Iraq and its neighbors will take place in Tehran early in December.
Sources: AFP, Voice of America, CNN, Kyodo News, Dow Jones International News
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