Weak Dollar

At the beginning of each class of my first-year course this year we spend about 15 minutes discussing the major events in the Financial Times.

One of the "big stories" in recent weeks has been the weakening of the dollar relative to major currencies and, not surprisingly, it prompted many questions about the underlying reasons for it.

In class we discussed many things::

1.  Recent decreases in risk aversion reversed the "flight to quality" seen during the peak of the crisis.
2.  Bad monetary and fiscal policy by the Fed and the US Treasury relative to other countries (aka higher inflation).
3.  Sovereign governments diversifying their reserves to securities in other currencies.
   

The last time I was a serious student of macroeconomics was almost 10 years ago. Paul Krugman comes up with a sensible argument, but a smart guy like Barry Eichengreen (link here) is not so sure about the death of the dollar.