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Dollar thrill

• Evan Davis | Stars and strife |
• 29 Nov 07, 12:35 PM

For virtually my last excursion on this trip, I get into the dollar printing facility in downtown Washington DC.

Although we only get up close to one of the printing machines inside, it's still quite a thrill. Here I am with a pile of unfinished $100 banknotes.

There are only two of these facilities in the US, though they are capable of producing millions of notes a day. And it seems very different to the equivalent operation in the UK. We Brits print banknotes out in Debden in Essex, and have contracted it out to the private sector.

Here in the US it is a government operation right in the heart of Washington next door to the Holocaust Museum.

Now, the staff at the Treasury Department's Bureau of Engraving and Printing were very efficient and cooperative in allowing us in. They get nothing out of it (after all, they don't need TV publicity to sell their product).

But I detect a small amount of disappointment that we are using the facility as a backdrop to talk about the falling value of the dollar in the international currency markets.

I can understand why they might think the story is negative – people generally prefer strong currencies to weak ones. And the weak dollar reflects some of the current problems in the US economy (international investors have less enthusiasm for investing in the US).

And it is clear the BEP staff are like other Americans in becoming more aware their currency has fallen. In a country as big as this, people would be entitled to forget the value of their currency to foreigners, and yet people keep mentioning it.

They even make reference to the strong euro - a marked shift from previous trips, which sometimes left me with the impression the euro had barely dented the public consciousness.

But people here should not feel so negative about it. A weak dollar is not just a symptom of the problem; it is also possibly a solution. It provides a positive story in that it is helping the US adjust to a new phase in the economic cycle that places emphasis on exporting rather than importing, saving rather than borrowing.

In fact, the people who might need to worry most about how things are going are the Europeans.

Their currency is rising sharply against the dollar, and as a large proportion of the world ties its currency to the dollar, the euro is rising against other currencies too.

This is a bit of a pain.

There are a number of trade imbalances in the world, none more important than the trade deficit of the US. When that deficit is reduced, there has to be a reduction in some other countries' surpluses.

One option, which seems much the most desirable, is that the unsustainable US deficit is resolved by a reduction in the unsustainable surpluses of China and other Asian countries.

But the rising euro might mean that the US deficit is just transferred to Europe. The problem passed on, not solved.

It won't matter much to the Americans whether it is solved or transferred – either would be nice. But to create long-term stability, the rest of us should probably hope that the Chinese currency is allowed to rise further against the dollar, to ease pressure on the euro, stemming from the dollar's fall.

Of course, we are not going to get a complete end to the US deficit; and we are not going to get a US-sized deficit in the euro-zone, any more than we'll get US-sized portions of food.

But that is still quite worrying for Europe's economies, which for all their strengths, lack labour market flexibility. If there's weaker growth, it can quickly escalate into real economic woes.

I've spent a week here now, have spent the budget and am apparently expected to return home tomorrow. Maybe it is a good time: if we want to examine America's economic problems, Europe might be a good place to get a view of them.

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