Solomon, Robert
December 1981
Foreign Affairs;1981 Special Issue, Vol. 60 Issue 3
The article analyzes the impact of the United States' economic policies and economic ideologies on the world economy, as seen in the year 1981. The most important event, from the viewpoint of other countries, was the steep and sustained climb in American interest rates, which contributed to but was not the sole cause of a dramatic appreciation of the dollar in foreign exchange markets. The corresponding depreciation of other currencies posed serious policy problems for a number of countries and gave rise to numerous complaints in the spring and summer of 1981. The economic policy mainly responsible was the monetary policy of the Federal Reserve, carried out with the general, if occasionally backsliding, support of the United States president Ronald Reagan's Administration. Among the non-oil developing countries, those few that are heavy borrowers from the world's commercial banks experienced a significant increase in the burden of servicing debt, as interest rates skyrocketed. High interest rates were a principal cause of the rapid upward movement of the dollar in relation to the currencies of many other countries. The average value of the dollar in terms of the currencies of the ten major industrial countries rose 30 percent from August 1980 to August 1981. This was by far the largest swing in the dollar, up or down, since exchange rates began to float in March 1973.


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