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Saturday, May 21, 2011

"Needed: Plain Talk About the Dollar"

Christina Romer is frustrated with discussions among policymakers about the value of the dollar:

Needed: Plain Talk About the Dollar, by Christina Romer, Commentary, NY Times: At a recent news conference, Ben S. Bernanke ... 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.
Listening..., I flashed back to one of my first experiences as an adviser to Barack Obama. In November 2008, I was sharing a cab ... with Larry Summers... To help prepare me for the interviews and the hearings to come, Larry graciously asked me questions and critiqued my answers. When he asked about the exchange rate for the dollar, I began: “The exchange rate is a price much like any other price, and is determined by market forces.”
“Wrong!” Larry boomed. “The exchange rate is the purview of the Treasury. The United States is in favor of a strong dollar.” ... That strikes me as a shame. Perhaps if government officials could talk about the exchange rate forthrightly, there would be more ... rational policy discussions.
Such discussions would start with some basic economics..., there is no universal good or bad direction for the dollar to move. ...
Strangely, every politician seems to understand that [in the current situation] it would be desirable for the dollar to weaken against ... the Chinese renminbi. ... The United States would export more and grow faster... 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...
To say this openly risks being branded not just an extremist but possibly un-American. Perhaps it is time for a more adult conversation. ...

    Posted by on Saturday, May 21, 2011 at 01:08 PM in Economics, International Finance | Permalink  Comments (58)


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