Right Now a Weaker Dollar Would Be in America's Interest
I remember back in 1993 the garbage thrown at then-Treasury Secretary Lloyd Bentsen when he said--quite reasonably--a stronger yen would be in America's interest...
We have not grown up at all in eighteen years.
Christina Romer:
A Strong Dollar Isn’t Always a Good Thing: AT a recent news conference, Ben S. Bernanke, the Federal Reserve chairman, was asked about the falling dollar. He parried the question, saying that the Treasury secretary was the government’s spokesman on the exchange rate — and, of course, that the United States favors a strong dollar.... Our exchange rate is just a price — the price of the dollar in terms of other currencies. It is not controlled by anyone. And a high price for the dollar, which is what we mean by a strong dollar, is not always desirable.
Some countries, like China, essentially fix the price of their currency. But since the early 1970s, the United States has let the dollar’s value move in response to changes in the supply and demand of dollars in the foreign exchange market.... [A]ll that “the exchange rate is the purview of the Treasury” means is that no official other the Treasury secretary is supposed to talk about it (and even he isn’t supposed to say very much). That strikes me as a shame. Perhaps if government officials could talk about the exchange rate forthrightly, there would be more understanding of the issues and more rational policy discussions....
Consider two examples. Suppose American entrepreneurs create many products that foreigners want to buy, and start many companies they want to invest in. That will increase the demand for dollars and so cause the dollar’s price to rise.... Now suppose the United States runs a large budget deficit that causes domestic interest rates to rise. Higher American interest rates make both foreigners and Americans want to buy more American bonds.... The price of the dollar will again rise.... Both developments — brilliant American innovation and troublesome American budget deficits — caused the dollar to strengthen. Yet one is clearly a positive for the American economy, the other a negative. The point is that there is no universal good or bad direction for the dollar to move. The desirability of any shift in the exchange rate depends on why the dollar is moving.
It also depends on the state of the economy. At full employment, a strong dollar is good for standards of living. A high price for the dollar means that our currency buys a lot in foreign countries. But in a depressed economy, it isn’t so clear that a strong dollar is desirable. A weaker dollar means that our goods are cheaper relative to foreign goods. That stimulates our exports and reduces our imports. Higher net exports raise domestic production and employment. Foreign goods are more expensive, but more Americans are working. Given the desperate need for jobs, on net we are almost surely better off with a weaker dollar for a while....
STRANGELY, every politician seems to understand that it would be desirable for the dollar to weaken against one particular currency: the Chinese renminbi.... But in the very next breath, the same members of Congress shout about the importance of a strong dollar. If a decline in its value relative to the renminbi would be beneficial, a fall relative to the currency of many countries would help even more in the current situation. To say this openly risks being branded not just an extremist but possibly un-American. Perhaps it is time for a more adult conversation. The exchange rate is the purview of market economics, not of the Treasury or strong-dollar ideologues.
