MercoPress. South Atlantic News Agency

Weak dollar will eventually correct misbalance

US Federal Reserve Chairman Alan Greenspan said that a weaker dollar will eventually help reduce the US growing trade deficit and again warned about the risks of “growing protectionism” for the flexibility of the world economy.

Addressing this Tuesday the New York Economics Club Mr. Greenspan said that the US dollar compared to its main trading partners dropped 12% from its 2002 peak.

"The depreciation of the US currency that we've experienced lately should eventually help to contain the trade deficit, since foreign producers will export less to the US; besides as US corporations find foreign markets more receptive to our exports it should also help", said Mr. Greenspan.

In 2003 the US trade deficit reached 550 billion US dollars meaning the US had to borrow that money from foreign lenders.

Many economists believe that if for any reason foreigners become rapidly mistrustful and begin selling US bonds and assets, markets would quickly collapse forcing an immediate rise in interest rates.

However Mr. Greenspan said that as long as the international financial market remains flexible, which in the past has proved effective for overcoming difficult moments, these kinds of problems can be avoided.

"History suggests that the current misbalance can be neutralized with the least of consequences for the world economy and financial markets".