The dollar's decline won't be a quick fix for the persistent global imbalances in which the U.S. runs huge trade deficits while China and other nations run surpluses, a top official from the International Monetary Fund said.
The cheaper dollar has begun to boost U.S. exports by making American products more competitive abroad. But John Lipsky, first deputy managing director of the IMF, said the imbalances are likely to persist. He cited high oil prices, which tend to boost the dollar amount of U.S. imports, and China's policy of tightly managing its currency, which keeps the dollar from falling as quickly as it might.
China's yuan remains "significantly undervalued," despite recent appreciation against the dollar, Mr. Lipsky said in a speech at the Brookings Institution. He suggested the dollar was close to its proper value, while the euro may have overshot its course and become too strong.
Mr. Lipsky predicted that record energy prices will continue to push up surpluses in oil-exporting countries. "New misalignments may be emerging and risks may be shifting," he said. "We accept that large imbalances may be with us for longer than we had originally envisaged."
The dollar hit a new low against the euro last week and has depreciated 25% in real effective terms since early 2002. The U.S. current-account deficit, a broad measure of trade and other money flows, has fallen modestly, from a high of nearly 7% of gross domestic product late in 2005 to around 5% of GDP in the first quarter of this year.
By comparison, the more than 30% decline in the dollar from 1985 to 1991 brought the current account into balance from a deficit of 3.5% of GDP in 1987. While that shift might seem more dramatic, Mr. Lipsky said the present shrinking of the deficit is similar when taking into account high oil prices and one-time transfers that other governments made to the U.S. during the first Gulf War.
Mr. Lipsky expressed confidence that "notwithstanding the dramatic claims by some," the dollar would retain its role -- albeit somewhat diminished -- as the world's reserve currency.