Commentary – International Variables

In the last 30 years the USA, like the UK, has run persistent and large current account deficits whereas in the years before the USA tended to be a net exporter. Consequently, other countries have found themselves with large amounts of US dollars (and to a lesser extent UK pounds). Many of these funds have been used to buy US government bonds, thereby funding US government budget deficits.

Average current accounts as percentage of GDP in the period 2000-2007 ranged from almost 15% for Norway to minus 10% for Estonia. There were noticeably large deficits for three members of the Euro-zone – Portugal, Greece and Spain – all of which later required financial assistance following the financial crisis and the Greek debt crisis.
By 2015 four countries which received some form of financial assistance after 2007 – Greece, Ireland, Portugal and Spain – had converted sizeable current account deficits in 2007 to current account surpluses. A major reason for this is that the severe austerity measures imposed on those countries as part of the requirement for assistance has led to a sharp drop in their imports. Over the same period Germany’s current account surplus as a % of GDP has risen slightly whilst the UK’s deficit has increased.

Until the early 1970s the UK, like most other countries, operated within a fixed exchange rate system. Occasionally countries could alter this exchange rate, i.e. devalue or revalue. The UK’s devaluation in 1967 is an example. At the start of floating exchange rates in the early 1970s the UK£ lost value against the US$ – but since the 1980s it has hovered around 0.6.

More recently, after a gentle rise in its value in the early 2000s the UK£ experienced a sharp fall in its value against the US$ – and also the Euro – following the financial crisis of 2007/8. The latter fall was significantly reversed after 2013 though the Brexit vote of June 2016 led to a sharp fall in the value of the £ against both currencies.


The US$ depreciated in value against most currencies in the period from 2000-2007 but following the crisis it has appreciated against almost all currencies, probably because the US was thought to be safe haven for funds.