Talking Down the Dollar


The dollar has been weakening over the last year.  I tend to like a strong dollar, so I don’t like to see the President or the Treasury Secretary talking the dollar down, as the expression goes. I understand the impetus – it makes exports easier, which should help employment. But of course, you’re also being paid in depreciated dollars.
 
Now, maybe that works out when the cycle swings back, and you’re holding all these more valuable dollars, and you can start buying up valuable properties overseas. I just tend to think that underlying economic competitiveness overshadows transient currency moves, and that those moves are unpredictable enough as it is.
 
That said, the reporting on this has been, as usual, atrocious. First, talking down the dollar is not ipso facto a threat to or an abandonment of the dollar’s status as a reserve currency.
 
Second, the ECB is furious about it, because it undermines their own strategy, and they’re already pissed about tax reform repatriating potentially hundreds of billions of dollars back here to invest. If it were clearly against our interests, the ECB wouldn’t be reacting this way.
 
Third, it’s not an abandonment of decades long US policy. That’s just the sort of historical amnesia that 23-year-old reporters with no interest in the “date range” feature on google have been exhibiting since before Ben Rhodes saw it as a way to sell them on the Iran Deal.
 
John Snow did it in 2003 under GW Bush. Prior to that, Jeffrey Frankel has documented similar short-lived statements and policies under Carter, during the second Reagan Administration, GHW Bush in 1991, and early, briefly, in the Clinton Administration.
 
Only when the dollar has been extremely strong has it worried policymakers enough to actually intervene in the markets; many of the above examples are just talk. And there’s no evidence that right now, Trump or Mnuchin are doing anything other than talking, or that even if they wanted to, they could successfully intervene in the exchange rate markets for very long, anyway.
 
Chill.