Rarely has there been a currency whose real exchange rate has risen so much and for so long as did the dollar from 1980 to 1985. This prolonged appreciation caused a misalignment of the dollar, the world's key currency. Misalignment of the dollar as will be used in this paper means that the value of the dollar is "completely out of line with international cost and price relationships and also out of line with the trend of the American trade and current account" (Emminger, 1985, p. 20). According to Emminger, misalignment also produced distortions or a lack of proportionality between the dollar and foreign currencies. For example, a rise in the real value of the dollar means U.S. goods are more expensive relative to foreign goods. Because of these distortions, in February 1985, Secretary of the Treasury James Baker III initiated steps to devalue the dollar. The purpose of this article is to explain the reasons why the dollar was so strong and why it was devalued.
©1988 by the Board of Student Publications, University of Northern Iowa
Staton, Stephanie A.
"The Appreciation of the Dollar 1980-1985,"
Draftings In: Vol. 3:
3, Article 6.
Available at: https://scholarworks.uni.edu/draftings/vol3/iss3/6