On a real trade weighted basis, the dollar is down about 13 relative to its value in March 2006.

Over the past six years, the value of the trade weighted dollar has fallen by more than a quarter, as the US has continued to rack up historically unprecedented trade deficits.

The first answer, of course, is that the trade weighted dollar has fallen by more than 15 in real terms since its peak in early 2002.

The dollar, in particular, is likely to continue falling on a trade weighted basis if investors around the world continue to set aside the extreme risk aversion that caused the dollar s rise after 2007.

The dollar has declined during the past two years against not only the euro but also against most other currencies, including the Japanese yen and the renminbi. On a real trade weighted basis, the dollar is down about 13 relative to its value in March 2006.

If the real trade weighted value of the dollar falls by 25 over the coming decade, and the full effect of that dollar decline is reflected in import prices, the increased cost of imports would reduce the growth of US real incomes by about 0.4 a year.

The first answer, of course, is that the trade weighted dollar has fallen by more than 15 in real terms since its peak in early 2002. Yet the US deficits have persisted, and even risen, since then.

The trade weighted exchange rates (trade conversion factors), calculated separately for exports and imports, will continue to be applied by both organizations.

A first reason to doubt projections of a stronger dollar is that none of the news on which they are based is really news. The expectation of relatively strong US growth is already being reflected in the markets, with the dollar up 9 in trade weighted terms since mid 2014.

The rules of international trade and finance and technology access are weighted against the poor and the weak.

Even after the dollar s recent rally relative to the euro, the trade weighted value of the dollar is now 15 lower against a broad basket of major currencies than it was a decade ago, and 30 lower than it was 25 years ago.

Dollar depreciation improves Europe s terms of trade and real income.

And, while the Chinese yuan has remained more or less unchanged relative to the US dollar in the past year, the dollar s sharp appreciation relative to the euro and other currencies caused the overall trade weighted value of the yuan to rise. This further depressed Chinese exports.

The dollar is declining because only a more competitive dollar can shrink the US trade deficit to a sustainable level.

Unless the US economy improves its trade balance, the dollar will fall.

But the US cannot improve its trade balance unless the dollar falls.

Methodology for deriving weighted ranges

Accordingly, the weighted membership factor is 93,288 points (40 per cent of 233,219), the weighted population factor is 11,611 points (5 per cent) and the weighted contribution factor is 128,270 points (55 per cent).

The weighted baseline is variant 0w, which is the transposition of the current system from non weighted to weighted (base figure 2,700, membership 40 per cent, population 5 per cent, contribution 55 per cent).

Relative to the US dollar, an equal weighted basket of 10 major Asian currencies (excluding Japan) has retraced the crisis related distortions of 2008 2009 and has now returned to pre crisis highs.

So, although dollar bonds and, increasingly, dollar equities are a large part of these countries sovereign wealth accounts, most of the dollar securities that they hold are not needed to finance trade imbalances.

The weaker dollar also reduces the risk of future dollar decline, because it means that the dollar has to fall less in the future to shift the trade balance to a sustainable level.

The overall trade weighted value of the renminbi has thus declined significantly, particularly relative to the currencies of the emerging market countries with which Chinese producers compete.

The dollar s real trade weighted value already is more than 25 lower than it was a decade ago, notwithstanding the problems in Europe and in other countries.

Second, since the US has a large trade deficit that can only be cured by a more competitive dollar (while the euro zone countries collectively have a trade surplus), investors expect a trend decline in the dollar.

Indeed, the Treasury s only explicit currency goal now is to press the Chinese to raise the value of the renminbi, thereby reducing the dollar s global trade weighted average.

The yen s depreciation versus the dollar has contributed to continuing large US trade deficits with Japan.

America should not pin too much hope on a weakening dollar to correct its trade imbalances.

Some have suggested that the trade imbalance is related to China s currency peg to the US dollar.

So how low can the dollar sink? By my calculations, the dollar still needs to go down another 15 if the US trade deficit is to go back towards balance.

First, a weaker dollar is associated with a higher dollar price for commodities, which implies a drag on the trade balance, because the US is a net commodity importing country.

That means that the dollar must fall substantially further to shrink the trade deficit to a sustainable level.

The renminbi dollar exchange rate is, of course, only part of the story of what drives China s trade competitiveness.

However, the main (non weighted) system of desirable ranges remains applicable.

The resulting figure is weighted by the gross salary per annum in United States dollars divided by 1,000 (ibid., fourth column) to produce a weighted base figure (ibid., fifth column).

Empirical studies estimate that the overall impact of a weaker US dollar on the trade balance is close to zero.

National estimates are based on population weighted subgroup estimates from household surveys.

In the case of the US, heavy dependence on imported oil has worsened the trade deficit and further weakened the dollar.

The fact is that a weaker dollar resulting from lower interest rates gives the US a slight competitive advantage in trade.

(c) Changes to geographical distribution by application of the weighted system of ranges.

Different methods have been used to calculate the weighted ranges over the years.

The weighted midpoint in table 4 represents the sum of the weighted membership, population and contribution factors, and the weighted range is calculated as 15 per cent upwards and downwards (but not less than 415 points up and down (4.8 times 86.37), with the upper limit being not less than 1,209 points (14 times 86.37).

In case of an even distribution of staff of a Member State from the P 2 to the D 2 grade and beyond, the difference between the weighted and non weighted systems of ranges is minimal, and an application of the weighted system will not lead to changes in the representation status of that Member State.

So the dollar would have to stay at its current level to continue to create the large trade deficit and resulting capital inflow.

Supported by a dollar denominated line of credit, the EPU s 15 Western European member states established exact dollar exchange rate parities as a prelude to anchoring their domestic price levels and removing all currency restrictions on intra European trade.