The US Dollar

Since about 1999, media pundits have been predicting the imminence of two things: breakdown of the US economy and the end of dollar hegemony. The

first has more or less happened now. I have argued earlier in previous articles in this column that, in the long run, demographics will largely determine the economic/political shifts which normally follow major episodes of global recession.

The recent meeting of the G20 called to discuss measures to tackle the current global meltdown, made all the necessary Keynesian noises and, most important, established the need for a continuing multilateral dialogue for economic cooperation.

The second issue regarding the role of the dollar as the principal reserve currency also came in for some discussion with suggestions about the need for a second Bretton Woods conference to reform the global financial architecture. As in the 1940s, the discussion has centred around world liquidity and the dollar’s hegemony.

Joseph Stiglitz is also reported to have made noises about the need to end the primacy of the dollar. While some of these suggestions are certainly politically motivated, it is useful to discuss the economic fundamentals of such issues. After all, even political discussions must be backed by at least some modicum of economic rationality. This is what we will take up in this article.

What determines the dominance of a currency in world trade? Here it is useful to first begin with elementary undergraduate economics. Any currency, domestic or international, must satisfy three criteria: it must serve as a unit of account, medium of exchange and a store of value.

The first implies that people accept valuation in that currency, the second that they should be willing to accept that currency in return for sale of goods and services and the third that people should be willing to hold savings (future demand) valued in units of that currency. What has been the actual experience?

The problem of a unit of account other than gold vexed financial planners after the setting up of the Bretton Woods institutions in the late forties. If currencies were convertible to gold on demand then the world supply of currency would depend entirely on discoveries of new gold deposits.

Since global liquidity could not be allowed to depend on such fortuitous circumstances, the dollar came to be the principal reserve currency (convertible to gold) under the so called ‘gold exchange’ standard. The dominance of the dollar followed the decline of the pound sterling as the dominant currency after the Second World War.

The main circumstance that led to this was the Marshall Plan under which the US became the main supplier of goods and services to reconstruct war ravaged European countries. Since the demand was mainly for US commodities, it was natural that the dollar would best serve as the medium of exchange in international transactions.

Yet, this did not imply that the dollar need also be the unit of account. In fact, as Robert Triffin pointed out, increasing world supply of money depended on increasing US trade deficits and hence something new was needed. This came in the 1960s in the form of the IMF created Special Drawing Rights (SDRs) which became a unit of account in which reserves could be valued.

But, as we have noted, the SDR could never become a real currency as it could not serve as a medium of exchange: barring IMF quota transactions, all other world transactions were dominated by demand for US goods and hence dollars. In addition, the US was the only country willing to become the banker to the world by keeping the value of the dollar fixed in relation to gold (at least till 1971) and hence limiting its flexibility in domestic monetary polices.

That then is the bottom line. As long as countries value the independence of their monetary and fiscal policies the international reserve currency will follow the law of the market: any currency which satisfies the three properties we have noted will be the reserve currency irrespective of political preferences.

The primacy of the dollar comes from the dominance of the US in world production and hence supply of goods and services. Between 1980 and 2007, the US accounted for around 30% of world production (GDP). Since most transactions would thus involve the use of the dollar it makes sense for traders to reduce transaction costs by holding dollars. What about store of value? It is a telling fact that most countries hold dollar-denominated debt indicating their continuing faith in the dollar as a store of value.

When would the dollar’s primacy end? When world production shifts away from the US subcontinent and some other country exhibits the same degree of political stability. Who are the candidates? The euro is one but the share of EU27 in world production has fallen continuously since 1980 and is now around 25%. China? In 2007, China accounted for 6% of world GDP!

However unfortunate it may seem, the dollar is going to be around for some time to come. I am sure Stiglitz knows this.

Contraceptives: All you need to know

When the oral contraceptive pill (OCP) arrived in the markets about 50 years ago, it gave women a power they did not possess before. It opened their minds to a life with possibilities beyond just having kids and being a housewife and offered them an opportunity to pursue a career.

Today, the options for birth control have increased. Their roles too have grown from birth control to protection from sexually transmitted diseases (STDs). Barrier methods where a physical barrier prevents the sperms from reaching the eggs, or stops the fertilised ovum from implanting itself in the uterine lining, are ideal for women who may be at risk of contracting a disease or may have multiple sexual partners.

Chemical barriers like spermicides, or hormonal intra-uterine devices (IUDs) render sperms inactive when they enter the vagina. Then, there are hormonal methods, like pills and injectables, which alter the hormonal balance and prevent ovulation and pregnancy. The most recent entrant, the emergency contraceptive pill (ECP) is growing increasingly popular with younger women. It provides high doses of the regular pill in a single burst. Generally it is administered in two doses within a gap of 12 hours.

Doctors, however, warn against excessive use of ECPs. "These cannot replace the daily pills, and if used repeatedly, their failure rate increases," says Dr Gayatri Kamat, consultant obstetrics and gynaecologist at Wockhardt Hospital, Bengaluru [Images]. Before you choose your contraceptive, it is also important to talk to your doctor about your family history to know what suits you best.

  • Do not take the pill if you have high blood pressure, deranged lipid profiles, have suffered from jaundice in the past, or have a history of liver diseases or breast cancer (the latter is, however, debated by the experts).
  • Do not use the IUDs if you are pregnant, are allergic to copper, have an abnormal uterus, or a recent history of pelvic inflammatory disease or STDs.
  • Do not use a spermicide if you suffer from vaginal irritation or yeast infections, or have lacerations of any kind.

Traditionally in India, OCPs, IUDs and condoms have been the preferred modes of contraception, according to Dr Shirish Patwardhan, senior vice-president of The Federation of Obstetric and Gynaecological Societies of India, Mumbai [Images].

An expert gynaecologist can tailor-make contraception for couples depending on their health and lifestyle. It is important to know what may not suit you. "If the woman has migraine or some hormonal problem or is obese, then she should avoid pills. In this case, a condom can be used. A new mother can go for an IUD but she has to wait at least six weeks for the uterus to get back to its original size. But the best option for her are injectables, as she may forget to take pills every day," says Dr Kamat. An injectable is an injection taken on the buttocks once in three months that releases hormones into a woman's body that prevent her from conceiving. The GP may ask you to switch to a different method later.

Tubectomy or vasectomy is the safest option once you have achieved the desired family size. But the procedure is largely irreversible. In rare cases, even after a tubectomy, the sperm can find its way inside and lead to a complicated pregnancy. That makes vasectomy a better method of contraception.

Here is a breakdown of different methods and mediums of contraception:

Barrier methods

These prevent pregnancy by physically stopping sperm from entering the uterus.

Male condoms: A male condom is a thin sheath made of latex (rubber), polyurethane (plastic) or animal membrane. Worn by a man over an erect penis, it acts as a physical barrier to keep the sperm from entering the cervix and getting to the egg. It protects both partners from STDs. Condoms come in different sizes, colours and even flavours, and should be stored away from heat and light. Always check the expiry date before use.

Diaphragm: This is not very popular in India yet, and requires the intervention of a medical practitioner to insert it into the vagina. It is a small, round, rubber dome with a firm, flexible rim that covers the woman's cervix, and is used with a spermicide. Diaphragms come in a range of sizes. However, since it has to be held in place by the vagina, you will need to be refitted if you gain or lose weight, if you have a pelvic surgery and in the event of a birth or urinary tract infection. It may slip out of place, so be sure to check its placement before and after sex. If the diaphragm is dislodged during sex, spermicide should be reapplied. It protects against STDs and reduces risk of cervical cancer.

Spermicides: Spermicides are chemical barriers in the form of foams, creams, gels or suppositories, to be inserted into the vagina a few minutes before sex. They have a 70 to 90 percent effectiveness that works best when coupled with other barrier methods like male condoms or diaphragms. they contain a chemical that kills sperm or makes them inactive. Frequent use may irritate vaginal tissue and increase the risk of STDs. The most popular spermicide available in the Indian market is a suppository called Today.

Female condoms: These are a relatively new entrant, with just two brands -- Velvet (Rs 100 for a pack of three) and Confidom (Rs 250 for a pack of two) -- both manufactured by Hindustan Latex Ltd. The female condom targets the urban woman who is informed about sexual health issues and wants to take charge of her health. Its size may seem intimidating -- the condom is kept in place by the inner ring at the cervix and an outer ring at the opening of the vagina. It is made of a material called nitrile, which allows body heat transfer, making sex more pleasurable. It is also tougher and drastically reduces risk of breakage. You can use them in combination with a spermicide, but never with a male condom.

Intra-uterine devices (IUDs): An IUD is a copper coil fitted in the woman's womb that does not allow the sperm to meet the egg. Popularly called Copper T, it is a good alternative to hormone pills. The chemicals in the device change the uterine lining to prevent implantation of eggs. It can be effective for three to 10 years, depending on the kind of device used. The body may resent the foreign body initially, causing some pains. However, a wrongly inserted IUD could cause pelvic inflammation or puncture the uterus. Maintain good hygiene and medical care if you're using one. They are cost-effective and cost as little as Rs 400 to Rs 1,000.

Hormonal methods

These stop your ovaries from producing eggs and cause your cervical mucus to become thicker, inhibiting sperm movement

Oral contraceptive pills (OCPs): They are ideal for women who want to be sexually active but want a worry-free method of birth control. When taken as directed by a doctor, they offer nearly 100 percent protection against pregnancy.

Injectables: Depo-Provera is a popular injectable which costs around Rs 200. Injectables prevent pregnancy by suppressing ovulation. The first shot should be given within five days after the beginning of a normal menstrual period, and the shots should be repeated every three months.

Emergency contraceptive pills (ECPs): As the name suggests, they should be taken only in times of emergency and cannot replace OCPs. Even though no chronic side-effects are known from prolonged use of ECPs, they are best avoided. They have a high failure rate and can lead to irregular periods and menstruation-related problems.

Natural methods of contraception

Withdrawal method: It requires the man to pull out his penis from a woman's vagina just before he ejaculates. This method may not be very effective as it is very stressful for the male partner. Men also have what is known as 'pre-ejaculatory fluid' which seeps out during erection. While this is mainly lubricating fluid, it might contain a few sperms along with certain STDs. So a pregnancy or an infection cannot be ruled out.

Rhythm method: The couple either does not have sexual intercourse during the time when the woman is likely to get pregnant or uses a barrier method. Here, a good idea about the female partner's menstrual cycle is necessary. In a typical 28-day menstrual cycle, the fertile period is from the eighth day of the cycle to the 20th day of the cycle. The safe days are the five days of bleeding, three days from the end of bleeding and again eight days from the beginning of the next cycle. Safe period cannot be calculated in women with erratic menstrual cycles.

Mucus Method: It can be followed by observing the consistency of the cervical mucus or discharge after the monthly period. For example, directly after menstruation, the vagina is dry. This is the safest period to have sex. Just before ovulation the mucus gets sticky. During ovulation the cervical mucus is thick and bright. This is the most unsafe period to have sex. Again, after ovulation, the mucus decreases and before the next bleeding, the vagina gets dry again and intercourse becomes safe.

Despite the various options listed above, female sterilisation or the tubectomy is the most common choice of contraception in India. According to a recent survey by the National Family Health, of the 48 percent of married couples using contraception in India, tubectomy accounts for 71 percent.

Make an informed choice

Frequency of sex: If frequency of sex is low, condoms are the best option. You would not want to be on OCPs if you're having sex only once in a few months.

Number of partners: If you have multiple partners, use a method that protects against STDs. This means that an IUD, spermicides or injectables are not enough for you. You need condoms.

Mutual assent: The choice of contraception should be discussed mutually and responsibility should be shared.

Health and family history: Inform your gynaecologist about family medical history, especially your mother's, as there may be contra-indications with some types of contraceptives. This is vital in case there is a history of smoking, breast cancer, diabetes or heart disease, which can be aggravated by OCPs or injectables.