The steady and orderly decline of the US Dollar from early 2002 to early 2004 against the Euro, Australian Dollar, Canadian Dollar and a few other currencies (i.e. its trade-weighted average, which is what counts for purposes of trade adjustement), while significant, has still only amounted to about 20 percent.

There are two reasons why concerns about a free fall of the US Dollar may not be worth considering. Firstly, the US external deficit will stay high only if US growth remains vigorous, and if the US continues to grow strongly, it will also retain a strong attraction for foreign capital which, in turn, should support the US Dollar. Secondly, attempts by the monetary authorities in Asia to keep their currencies weak will probably not work in the long run.