Adam Drobiec/EyeEm/Getty Images

The Return of Dollar Shortages

Despite the broad global trend toward more flexibility in exchange-rate policy and freer movement of capital across national borders, many countries are lacking dollars. Indeed, in many developing countries, the only thriving market for the past two years or so has been the black market for foreign exchange.

CAMBRIDGE – Immediately after World War II ended, a new phrase entered the economic lexicon: “dollar shortage.” European economies were coping with extensive war-related damage and a broad array of impediments to their efforts to rebuild their industrial base. At the time, the United States was the only provider of capital equipment for reconstruction. So, without access to US dollars, Europe’s economies could not obtain the inputs needed to increase their exports.

With limited, if any, hard-currency (US dollar or gold) reserves on hand, and little prospect for acquiring dollars through export earnings, European economies attempted to shrink their current-account deficits by compressing imports from other (mostly) European countries. The expectation was that import compression would permit them to accumulate sufficient dollars to purchase capital imports from the US.

But, because numerous countries employed the same tactics in an environment in which a broad array of capital controls was in place and official exchange rates were pegged to the US dollar, a parallel currency market flourished. The black market’s premium (relative to the official exchange rate) in most European countries (and in Japan) skyrocketed through the early 1950s, reaching levels that we now tend to associate with “unstable” emerging markets.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

required

Log in

http://prosyn.org/IMYK085;
  1. Sean Gallup/Getty Images

    Angela Merkel’s Endgame?

    The collapse of coalition negotiations has left German Chancellor Angela Merkel facing a stark choice between forming a minority government or calling for a new election. But would a minority government necessarily be as bad as Germans have traditionally thought?

  2. Trump Trade speech Bill Pugliano/Getty Images .

    Preparing for the Trump Trade Wars

    In the first 11 months of his presidency, Donald Trump has failed to back up his words – or tweets – with action on a variety of fronts. But the rest of the world's governments, and particularly those in Asia and Europe, would be mistaken to assume that he won't follow through on his promised "America First" trade agenda.

  3. A GrabBike rider uses his mobile phone Bay Ismoyo/Getty Images

    The Platform Economy

    While developed countries in Europe, North America, and Asia are rapidly aging, emerging economies are predominantly youthful. Nigerian, Indonesian, and Vietnamese young people will shape global work trends at an increasingly rapid pace, bringing to bear their experience in dynamic informal markets on a tech-enabled gig economy.

  4. Trump Mario Tama/Getty Images

    Profiles in Discouragement

    One day, the United States will turn the page on Donald Trump. But, as Americans prepare to observe their Thanksgiving holiday, they should reflect that their country's culture and global standing will never recover fully from the wounds that his presidency is inflicting on them.

  5. Mugabe kisses Grace JEKESAI NJIKIZANA/AFP/Getty Images

    How Women Shape Coups

    In Zimbabwe, as in all coups, much behind-the-scenes plotting continues to take place in the aftermath of the military's overthrow of President Robert Mugabe. But who the eventual winners and losers are may depend, among other things, on the gender of the plotters.

  6. Oil barrels Ahmad Al-Rubaye/Getty Images

    The Abnormality of Oil

    At the 2017 Abu Dhabi Petroleum Exhibition and Conference, the consensus among industry executives was that oil prices will still be around $60 per barrel in November 2018. But there is evidence to suggest that the uptick in global growth and developments in Saudi Arabia will push the price as high as $80 in the meantime.

  7. Israeli soldier Menahem Kahana/Getty Images

    The Saudi Prince’s Dangerous War Games

    Saudi Arabia’s Crown Prince Mohammed bin Salman is working hard to consolidate power and establish his country as the Middle East’s only hegemon. But his efforts – which include an attempt to trigger a war between Israel and Hezbollah in Lebanon – increasingly look like the work of an immature gambler.