The U.S. dollar or greenback have dominated the world’s cash transactions and the foreign exchange reserves for more than half a century, and still considered the “King” of the world currencies despite its value has been declining since 2003. The recent global financial crisis clearly put the role of the dollar in the international market under spotlight after the confidence in the currency was shaken with the staggering performance of the U.S. economy.
From the point of view of macroeconomic indicators for the United States, the situation seems scary, the budget deficit reached astronomical figures, and the size of the public debt is over $ 16 trillion, as well as the high rates of unemployment and low economic growth. However, there are no signs supporting that the dollar will collapse. In fact, the decline in the value of the U.S. currency could be described as “orderly” and there are no compelling signs that things may get out of control and that the dollar will seriously deteriorate. On the contrary, all indicators show that the dollar may start a gradual rise again.
Eyes on America’s shale boom
For the time being the dollar will continue to be the “king” of the currencies and the greenback will maintain its position strong for years to come. The dollar may remain as the dominant currency for at least the next decade because: (a) the Chinese currency ‘yuan’ currently is non-transferable and could take at least another decade to become a convertible currency in world markets or until the Chinese financial system and its exchange rate regime are substantially more liberalized. (b) The troubles facing the European union now which cast a shadow over the euro; (c) the small size of Japan and the British currency markets. And (d) the IMF’s special drawing rights (SDRs) enjoy neither the liquidity nor the confidence to be able to function as global currency.
Above all, the influential commentator, the celebrated financial historian and Harvard University professor, Niall Ferguson, argues that the abundant availability of indigenous energy could spark a new economic “golden age” for the United States. Indeed, the most immediate impact of the shale-gas bonanza has been on America itself.
Fatih Birol, the International Energy Agency’s chief economist, stated recently “it means that the many people who had written off the U.S. economy have made a big mistake (…) The U.S. current account deficit is declining, there will be downward pressure on inflation and the dollar will strengthen.” As a result; foreign exchange investors should pay close attention to America’s shale boom over the next few years, and take a more constructive longer-term view on the greenback.
Unconventional oil and natural gas activity is already revolutionizing America’s energy future and bringing enormous benefits to its economy
The U.S. in 2011 spent more than 2 per cent ($ 465 billion) of gross domestic product each on net imports of crude oil and other petroleum products. According to forecasts by Deutsche Bank, reduced energy dependence would cause the U.S. current account deficit to fall 30% by 2016. While, UBS, Switzerland’s largest bank and one of the biggest financial institutions in the world is optimistic about the shale “revolution” as the boom from shale oil will bolster the greenback by narrowing the current-account deficit and trimming cash paid to oil exporters that then diversify away from U.S. assets.
Unconventional oil and natural gas activity is already revolutionizing America’s energy future and bringing enormous benefits to its economy.
The IHS expects substantial growth in capital expenditures and employment to occur in support of the expansion of production within the unconventional sector. IHS Global Insight recent report claims that already in 2012, employment in the entire unconventional oil and gas production sectors have added more than 1.7 million jobs to the economy. This number is expected to grow up to 2.5 million jobs by 2015, and 3 million jobs by 2020.
Additionally, in 2012, unconventional oil and natural gas activity will contribute nearly $ 62 billion in federal, state and local tax receipts. By 2020, total government revenues will grow to just over $ 111 billion. On a cumulative basis, unconventional oil and natural gas activity will generate more than $ 2.5 trillion in tax revenues between 2012 and 2035. Also, more than $ 5.1 trillion in capital expenditures will take place between 2012 and 2035 across unconventional oil and natural gas activity.
At the same time, historically low U.S. natural gas prices, which are a third of those in Europe and Japan, are prompting billions of dollars of investments in U.S. advanced manufacturing - thus fuelling a new export economy. According to Dow Chemical, which has announced its own $ 4 billion investment plan in petrochemical plants in Texas and Louisiana, has calculated the total value that manufacturers industry has announced over 100 capital investments representing over $ 90 billion in spending in the U.S. in the past two years or so to take advantage of its cheap natural gas.