Recently, we have witnessed a decline in the value of US dollar in the global markets. The US dollar is at a multi year low against a lot of currencies across the world. People are led to believe that a drop in the value of dollar will only affect the US markets and other countries will keep on prospering and their economies will grow. However, such an assumption does not hold true in today’s world and exactly the opposite happens because all the countries are extensively interdependent on each other and a large part of a country’s revenue is through exports. The analogy that can be adopted here is a stone dropping in a pond. The affect of the splash is not isolated to one region of the pond but spreads to all the corners until it dies out.

According to the above mentioned claim that markets across the world are extensively linked to one another, a decrease in the value of dollar will produce effects all around the world. Other large economies such as Japan and China would restrain their investment in US economy because that would potentially lead to a loss in their investment. Such a strategy adopted by big economies would eventually worsen the conditions of that economy as a decrease in investment would lead to a stagnation rather than flow of money. The following are the recent updates in the world market taken from cnn.com :

Asia Pacific & Australia
		Index	Change	%Change	Level	Last Update *
	Australia	ASX 100	-69.80	-1.53%	4,493.60	2/29 4:47pm
	Australia	ASX All Ords	-71.40	-1.24%	5,674.70	2/29 4:47pm
	Australia	ASX Mid-cap 50	-48.60	-0.82%	5,901.80	2/29 4:47pm
	Hong Kong	Hang Seng	-260.02	-1.06%	24,331.67	2/29 5:59pm
	Hong Kong	HSCC Red Chip	-34.27	-0.62%	5,484.34	2/29 4:25pm
	Japan	Nikkei 225	-322.49	-2.32%	13,603.02	2/29 12:00am
Europe
		Index	Change	%Change	Level	Last Update *
	Belgium	Bel 20	-5.56	-0.15%	3,757.12	2/29 6:07pm
	Europe	DJ Stoxx	-50.76	-1.57%	3,188.82	2/29 7:00pm
	Europe	Euronext 100	-11.19	-1.29%	852.95	2/29 6:07pm
	Europe	Euronext 150	-20.00	-1.25%	1,583.17	2/29 6:07pm
	France	CAC	-74.57	-1.53%	4,790.66	2/29 6:10pm
	France	SBF 80	-74.75	-1.34%	5,523.24	2/29 6:21pm
	France	SBF 120	-53.13	-1.51%	3,473.43	2/29 6:21pm
	Germany	DAX	-114.39	-1.67%	6,748.13	2/29 6:31pm
	Germany	MDAX	-128.78	-1.40%	9,093.54	2/29 6:31pm
	Germany	TECDAX	-18.14	-2.26%	784.03	2/29 6:31pm
	Netherlands	AEX	-6.38	-1.41%	446.53	2/29 6:07pm
	Norway	BRIX	+3.09	+0.08%	3,913.92	2/29 3:56pm
	Norway	OSE Industry	-7.29	-0.43%	314.07	2/29 4:28pm
	Sweden	OMX	-5.79	-0.60%	965.29	2/29 5:44pm
	Sweden	OMSX All Share	-4.94	-1.51%	321.35	2/28 12:00am
	UK	FTSE 100	-81.40	-1.36%	5,884.30	2/29 4:35pm
	UK	FTSE All Shares	-42.08	-1.38%	3,013.02	2/29 4:36pm
	UK	FTSE Eurotop	-38.99	-1.39%	2,757.24	2/29 4:45pm
	UK	FTSE Techmark	-24.12	-1.53%	1,547.85	2/29 4:36pm
Americas
		Index	Change	%Change	Level	Last Update *
	Canada	TSE 300	-291.20	-2.10%	13,582.69	2/29 5:05pm
	Canada	CDNX	-27.43	-0.98%	2,782.07	2/29 5:05pm
	Canada	S&P/TSX 60	-18.79	-2.31%	795.23	2/29 5:05pm

One observation to be noted in the above table is that relatively small economies such as Norway etc are not affected by a change in the US economy. Similarly, we can say that if the Norwegian market crashes, it would not produce the same effect around the world as in case of the US economy. This leads to the conclusion that economies that are at the center of networks and are heavily linked to other nodes (economies) contribute the maximum in the network. A change in these “power nodes”, as I call them, would affect the rest of the network but it would take a large effect in many smaller nodes to produce a change in a power node.

The article (link below) on the decreasing value of US dollar cites that the Federal Reserve Chairman Ben Bernanke is hinting at cutting interest rates, taking into account the decreasing value of dollar and the worsening economy. This strategy will worsen the condition of the economy further. According to the above discussion, the decrease in the interest rate would lead to a decrease in investments by other countries in the US economy hence a decrease in the imports from other countries to US. Thus, it can be concluded that ideally, the optimal Nash Equilibrium will exist in the global markets if each economy is extensively interlinked to all other economies, contributing the maximum possible to the entire network to sustain the flow of money.

References:

http://money.cnn.com/2008/02/29/markets/dollar/index.htm

http://money.cnn.com/data/world_markets/