IN OTHER WORDS
When asked about the US administration’s policy on the dollar, Treasury Secretary Henry Paulson Jr dutifully says a strong dollar is in the nation’s interest and that markets should determine currency exchange rates. But these days, the stated desire for a strong dollar is on a collision course with the stated belief in market-determined exchange rates.
Almost daily, the market is pushing the dollar to record lows against the euro and to fresh lows against other currencies, including the Canadian dollar, the pound and the yen.
The dollar’s value is connected to Americans’ standard of living. In the US, the quality of one’s economic life is determined largely by purchasing power.
A weaker dollar could cut into purchasing power by raising the cost of imports for which, increasingly, there are no domestic substitutes. For a variety of reasons, higher oil prices also tend to translate into higher food prices.
A sharp decline in the currency would mean a sharp decline in living standards. A slower decline in the dollar would mean a slower decline in standards. The first would be a calamity. But the second is also unacceptable. True, a weaker dollar boosts American exports and attracts foreign shoppers, but you can’t build a strong American economy on a declining dollar.