A depreciation of the dollar is the most desirable way of curing the so-called "twin deficits", according to Shane Garrett of the Economic and Social Research Institute.

Speaking at the Dublin Economic Workshop economic policy conference in Kenmare, yesterday, Mr Garrett said that a correction of the US current account would have limited effects on Ireland as such a correction would affect US consumption only in goods where Ireland has little trading interest.

Mr Garrett said that the US Current Account deficit, which represents the US's balance of imports over exports in goods and services, has grown from 2.4 per cent of Gross Domestic Product to 5.7 per cent of GDP.

In addition to stronger US growth relative to the rest of the world - leading to higher imports - Mr Garrett cited higher energy dependency, military expenditure and housing equity-related growth in consumption as short-term factors explaining the deterioration.

But demographic factors were also at play in the long-term due to a younger population investing while more ageing nations such as Japan and Germany engaged in saving, according to Mr Garrett.

Foreign investors were willing to sustain the US appetite for growing consumption because of the prestige of the dollar. "The big feature of the US economy today is the huge amount of money being bucketed to the economy by foreign investors because of its reputation."

The dollar's popularity was attributable to investor confidence as well as its use on world commodity markets. "Because trade in oil and gold is denominated in dollars, the dollar is effectively a world currency," he said.

"A major dollar depreciation would make US exports cheaper and imports into the US more expensive. I calculate that if the dollar were to depreciate by 37 per cent, the US would return to being a net creditor, instead of a net debtor."