The influential non-government research agency in Washington, the Institute for International Economics, says that while the dollar's recent decline in value is welcome the U.S. currency needs to fall further.
The dollar has fallen about 15 percent against other major currencies in the past three years. Against Europe's single currency the decline has been even greater.
Fred Bergsten, the head of the Economics Institute, applauds the dollar's decline, but says it needs to fall further in order to remedy America's huge payments deficit with the rest of the world.
"In short, the correction of the dollar seems to have gone about half way towards the ultimate equilibrium that seemed to arise from our discussions, our conferences, our analyses as being essential," said Mr. Bergsten.
Mr. Bergsten points to the large U.S. trade deficit, an amount equal to what he views as a destabilizing six percent of U.S. economic output. Mike Mussa, the former chief economist at the International Monetary Fund who is now an institute researcher, agrees that a further dollar decline is needed to avert a payments imbalance that could trigger a financial panic.
"A weaker dollar is clearly a necessary part of the adjustment process. We need to shift the pattern of global demand towards U.S.-produced goods and services and away from rest of the world produced goods and services," added Mr. Mussa.
The institute researchers say for the global adjustment to be complete, China, with a huge payments surplus, must significantly revalue its currency, which Beijing holds at a fixed rate to the dollar. Mr. Bergsten says China's refusal to revalue shifts the full adjustment burden to western Europe and the United States.
"As the dollar has declined against most other currencies, China has been riding it down, further strengthening its competitive position in a world in which it is already regarded as one of the most competitive economies," he noted. "Not only has that kept China itself out of the adjustment process, but the fact that other east Asian currencies are unwilling to appreciate against China for fear of their competitive position in the region, that has severely truncated the willingness of the rest of Asia to participate in the adjustment process."
While the researchers applaud the dollar's recent decline-and want still more, they do worry about the danger of the euro becoming too strong. The strengthening euro hurts European exports and could tip the already weak European economy into recession.