For many CFOs, there is a sense of inevitability about the dollar’s current plight. “The U.S. economy is growing slower than much of the rest of the world, which puts continuing pressure on the dollar,” says UTC’s Hayes. “The deficits we are ringing up to fund the wars in Iraq and Afghanistan add to that pressure.”
“My concern is not that the dollar’s decline is cyclical, but that it’s a long cycle,” says Scott Goble, finance chief at Alliance Flooring, a private company with more than $1 billion in annual sales. Although Alliance does business only domestically, the company has been affected by rising raw-materials costs. “We need to keep interest rates low to keep the housing situation from getting out of hand, but we need to maintain high enough rates to keep foreign investment coming in,” Goble says. “I don’t see a way to do that without a devalued currency.”
Indeed, according to economic theory, currency devaluation is the natural response to outsized budget and trade deficits, says John Graham, a professor of finance at Duke University’s Fuqua School of Business and director of the Duke/CFO Global Business Outlook Survey. “If as a country you don’t save, and you spend, spend, spend, ultimately your currency will devalue,” he says. Given the lack of savings in the United States and the growth in the Chinese and Indian economies, “it’s possible that the United States is in the beginning of a decline,” says Graham. “It could be that we’ve lost our way a little bit.”
Still, most CFOs are hesitant to count the dollar out. “There are some radical imbalances in the U.S. economy that are pushing for this kind of depreciation,” says Edelstein. “But the economic dynamics are such that the situation will correct itself.” The weaker dollar will attract capital to the United States and drive exports, he says. David Elkins, North American finance chief at AstraZeneca International, the British pharmaceutical company, also anticipates an increase in cross-border merger activity. “U.S. assets are becoming cheaper for foreign investors. We will start to see more foreign investment in the U.S. market,” he says (see “Attention, Shoppers!” at the end of this article). In one example, Dow itself just announced a U.S.-based joint venture with Petrochemical Industries Co. of Kuwait to manufacture and market plastics.
In fact, another reason the dollar’s fall may not be such a bad thing is that the very processes that restore economic equilibrium — like foreign investment and increasing exports — are currently buoying the U.S. economy. “If the dollar had stayed steady in our current economy, I think we’d be in a recession,” says Global BPO Services’s Kane. “As much as the Federal Reserve and governmental agencies knock the dollar’s decline, I think they’re secretly applauding it.”
While there are elements to the dollar’s weakness that indicate a longer-term shift in its value relative to other global monies, many doubt that the euro — much touted of late — will necessarily become the world’s leading currency. “If you look at the prospects in Europe versus the U.S. from an economic-growth standpoint, I would put my money on the U.S.,” says Hayes. Graham agrees: “Europe faces high tax rates, huge social programs, and promises to future retirees. I don’t think the U.S. will be worse off than Europe 20 years from now. But we might well be worse off relative to the Asian economies.”