The EconomistJanuary 20th 2018 Leaders 131I
N DECEMBER a new dollar bill
came into circulation adorned
with the signature of Steve Mnu-
chin. Instead of his usual scrawl,
the treasury secretary opted to
print his name. If he hoped that
his best handwriting would give
the greenback a fillip, he may
well be disappointed. The dollar reached a peak against a bas-
ket of other currencies a year ago and has not threatened to re-
gain it. Gurus of the foreign-exchange markets agree that 2018
is likely to be another year of modest decline. That is because
of three sources of downward pressure.
The first relates to the world economy. The dollar’s descent
is not so much a judgment on America’s fitness as a sign of the
burgeoning health of other places. So long as America was one
of the only places that could be relied upon for economic
growth, there was a powerful logic to the dollar’s strength. A
broad-based global upswing—evident in everything from
booming stockmarkets to a surging oil price (see page 59)—
means that investors are now rushing into currencies other
than the dollar. That effect is proving stronger than the expecta-
tion thatAmerican firms will repatriate more profits thanks to
the recent tax cut. And it seems likely to continue.
The second source of downward pressure reflects a change
in policymakers’ attitudes. Until quite recently, no country
seemed keen on a strong exchange rate. A cheap currency was
prized. Curbing imports and boosting exports was a way to
grab a bigger share of scarce world demand. In 2010 Brazil’s fi-
nance minister said that a “currency war” had broken out,
with countries vying to weaken their exchange rates using
weapons such as quantitative easing (printing money to buy
bonds) or capital controls. Rich-world central banks feared that
even a hint of tighter monetary policy might cause their cur-
rencies to surge against their peers, to their economy’s detri-
ment. But now that global growth is buoyant, few countries
seem to mind much if their currency rises. Interest rates have
been raised, not only in America but also in Canada and Brit-
ain. The European Central Bank (ECB) has reduced its bond-
buying programme, as has Japan’s central bank.An era of currency peace
As extraordinary monetary policy is slowly withdrawn, the
fundamentals matter more. This is the third force pushing
down the dollar: its price against other major currencies.
Benchmarks such asThe Economist’s Big Mac index, based on
the idea that goods and services (in this case a burger) should
cost the same the world over, are useful guides to how far cur-
rency values are out of whack. According to the latest version
of the index, only a handful of rich countries have dearer cur-
rencies than America’s (see page 62). That is a big change from
a decade ago. On the same benchmark in 2008, only two rich
countries had a cheaper currency than the greenback.
Some currencies have already jumped against the dollar. In
a matter of weeks last summer the euro moved from $1.11 to
$1.20, in response to a hint from the ECB’s boss, Mario Draghi,
that the tailing off of its bond-buying would begin soon. Other
currencies are more likely to strengthen than in past years. It is
easy to imagine the yen snapping back towards its fair value in
the way the euro did last year. There are still cheap currencies
in countries with close ties to the euro area’s thriving economy,
such as Poland and the Czech Republic. With the exception of
Brazil’s real, emerging-market currencies in general are still
very undervalued. Expect them to strengthen further.
In the short term, a consensus on a currency’s fall can be a
prelude to it going the other way. But for 2018 as a whole, fur-
ther strength in the greenback seems unlikely, no matter
whose autograph ison the bills. 7Currency markets
Playing ketchup with the dollar
US dollar
Trade-weighted exchange rate
January 1st 2016=2016 17 1895100105Whether a currency is cheap or dear is not always a good guide to its fortunes. It is now
“B
READ, freedom, dignity.”
These were the demands
of Tunisian protesters who
threw off autocracy and sparked
the Arab spring seven years ago
this month. Tunisians now have
more freedom and some dignity.
But bread is scarcer than ever.
GDPper person has barely budged since the revolution. That is
why Tunisia hasonce again been mired in protests, this time
over higher taxes, lowersubsidies and the lack of jobs.
Nine governments in seven years have failed to revive the
economy (see page 39). Tunisians are losing faith in democracy.
Some even yearn for the return of Zine el-Abidine Ben Ali, the
despot whom they tossed outin 2011. According to today’s
rose-tinted nostalgia, he at least ensured that Tunisians had
work. In fact, Mr Ben Ali left Tunisians feeling much as they do
today: as if they have no future. He also tortured dissidents, op-
pressed workers and plundered the public coffers.
The best hope for Tunisia is still democracy. But for democ-
racy to arrive, the government needs to put bread on the ta-
ble—by beginning to fixTunisia’seconomy.
There is much to do. The country is still haunted by the
abuses of Mr Ben Ali and his cronies, who drove away foreign
investors. In recent years a spate of terrorist attacks has scared
off sun-loving tourists. At the first hint ofcuts to the publicsec-Democracy in Tunisia
The seven-year itch
Tunisia needs help if it is to remain a model for the Arab world