Whither the dollar, and why?
Woody Brock | SED | 31 July 2025
Consider two very different theories of what causes currency values to change. The first was applied in the 1970s and the 1980s in the period after President Nixon cut the US from the gold standard. Its central tenet - other things being equal - was that if Nation A raised its interest rates over Nation B’s by 3%, then Nation A’s currency would swiftly increase by 3%. That is, interest rates drive currencies.
A further portion of this theory argued that the fluctuating trade deficits/surpluses of the two nations will not impact their currency ratios, as changing interest differentials will. A main reason was that thes...