Traditional economics has laid down a thumb rule for determining the value of a nation’s currency viz a viz its current account status. If a country has a growing current account surplus, its currency should appreciate. On the other hand a rising current account deficit implies that the value of the domestic currency should fall.
However, in the case of the US Dollar, the theory seems to be faltering. The US has the largest current account deficit in the world and is also the most indebted nation. But, the dollar does not seem to reflect this as it has stayed buoyant for quite some time now.
Billionaire financiers George Soros, Bill Gates, and Warren Buffet have all taken long term positions against the dollar and feel that the currency is overvalued. However, there is no simple answer to this situation. Globalization has made the equations very complex and lot of economists believe that the situation of a strong dollar and a current account deficit is sustainable.
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