ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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NON-FERROUS METALS-Case for Pricing Policy Review

servicing difficulties for many underdeveloped countries.
Evidently,' the Reserve Bank governor's statement, as reported, skips several steps. Given the situation created by the practice of Reaganomics, as reflected in the mounting US budgetary deficits complemented by deficits in trade and payments, it was only a matter of time before the dollar came under pressure. In fact, the consensus among US economists had grown over recent years that the dollar needed badly to devalue and that too substantially. Of course, this conclusion rested on the rather arguable belief that the major factor behind the US trade and payments deficit was the loss of US competitiveness. It ignored the fact that the resort by the US government to deficit budgeting with a view to financing major increases in defence outlays, while at the same time keeping the economy in balance, meant relying more and more on external funds. This did work for a while, as long as the countries accumulating large external surpluses, especially Japan, were willing to reinvest these surpluses in the US in one form or another. Japan did the reinvestment directly in US government securities in good measure. But it also meant that the US eventually became a net debtor to the rest of the world, a position none in the not too distant past expected the country to reach. Once it became a net debtor, the pressure on the US balance of payments was bound to become even greater than before. So the dollar's decline is much more the consequence of US budgetary policies than of the decline in US competitiveness vis-a-vis the other developed countries. In the circumstances, there is no reason why the decline in the dollar's value should not give it a much stronger edge in the world markets. That this has not been reflected so far in an improvement of the US trade balance should certainly give considerable food for thought to the votaries of indiscriminate devaluation. But that the United States' competitors are deeply worried on this score is clearly reflected in their deep concern at the dollar's decline and their strong pressure on the US ad ministration to reduce its budgetary deficit.

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