Bernanke: A New Super-Currency Would Weaken the Dollar
Source: MarketWatch, Ronald D. Orol & Nick Godt (10/1/09)
". . .the U.S. needs to borrow more than $1 billion a day."
"It would weaken the dollar, and we would have to watch for any inflationary consequences of that," Bernanke said during the question and answer segment of a House Financial Services Committee hearing. "I don't see that as a risk as long as we as a country take efforts to manage our risk and keep inflation low."
Bernanke added that the dollar is not at any immediate risk of losing its status as a reserve currency, however he acknowledged that if the U.S. doesn't put its "economic house in order," risk could eventually grow for the U.S. currency.
The dollar index, which measures the U.S. unit against a basket of six major currencies, stood at 77.117, compared with 77.047 in earlier trade, and with 77.085 late on Wednesday.
Bernanke added that he believes the Fed can manage policies to support the U.S. economy without inducing inflation in the short term. "We believe we have the tools and political will to achieve that," he said.
He responded to a lawmaker who raised concerns about the U.S.'s extensive foreign borrowing, saying that the U.S. needed to save more and spend less.
"The best way we have to raise our savings rate is to improve our financial position," Bernanke said.
During the second quarter ending in June, the U.S. current account deficit was 2.8% of the U.S. GDP. The current account in the second quarter was $99 billion, which means the U.S. needs to borrow more than $1 billion a day.
The current account deficit was as high as 6.5% of GDP in 2005.