back to the 'strong dollar' mantra
[New York Times] October 30, 2003 Treasury Chief Says China Isn't Manipulating Its Currency By KENNETH N. GILPIN Seeking to avoid the onset of what could turn into a trade war with China, Treasury Secretary John W. Snow told senators today that Beijing was not manipulating its currency exchange rate to gain an unfair advantage over American manufacturers. But in practically the next breath, Mr. Snow acknowledged that China did not meet the technical requirements established under Omnibus Trade and Competitiveness Act of 1988, "the same finding for nearly 10 years of past reports." Under the terms of the act, if the Treasury finds a country has been unfairly manipulating its currency, the administration must begin negotiations with the offending country to correct the problem. But if those discussions fail, the United States could take retaliatory trade action. In his opening remarks before the Senate Banking Committee, Mr. Snow also made his strongest statement yet in support of the dollar. "A strong dollar is in the U.S. national interest," he said. Mr. Snow's statement was a message to the foreign-exchange market that it had misinterpreted the meaning of a statement issued last month by the finance ministers of the Group of 7 leading industrialized countries at a meeting in Dubai. Currency traders had interpreted that statement as being consistent with the Treasury secretary's suggestions earlier this year that the Bush administration would not be displeased to see the value of the dollar decline as a way of increasing American exports and thereby reducing its enormous trade deficit, which this year will be around $550 billion. "Snow posted a much stronger defense of the strong dollar than many expected," said Jeremy P. Fand, senior proprietary trader at WestLB, a German bank. Mr. Snow made his comments about the dollar against the backdrop of a government report today that showed that the American economy expanded at an annual rate of 7.2 percent in the third quarter, the biggest quarterly increase in almost two decades. The dollar rose moderately in the wake of Mr. Snow's testimony. This afternoon in New York, the dollar was quoted at 108.75 Japanese yen, up from 108.23 yen late Wednesday. Meanwhile, the euro slipped to $1.1631, from $1.1675 on Wednesday. China has come under increasing scrutiny - and criticism - because for the past decade it has chosen to peg its currency, the yuan, at about 8.28 to the American dollar. At that rate, many analysts estimate the yuan may be undervalued by anywhere from 15 percent to as much as 40 percent against the dollar. Even though many American companies have established operations in China and export goods back into the United States from there, manufacturers and lawmakers in this country argue that a pegged currency gives China an unfair trade advantage, costing millions of American jobs. Through the first eight months of this year, China posted an $88.3 billion trade surplus with the United States. Earlier this week, Commerce Secretary Donald L. Evans said that surplus could reach $130 billion for all of 2003, up sharply from the $103 billion surplus recorded for all of 2002. But in his testimony today, Mr. Snow pointed out that even as China's bilateral surplus with the United States has mushroomed, its global current account surplus has been declining. For the first eight months, China's global current account surplus, which measures trade in goods and services, amounted to $9 billion. Members of the Senate panel were given copies of Mr. Snow's conciliatory remarks prior to the start of the hearing. In a reflection of the toll the decline in manufacturing has taken on employment around the country, senators from both parties reacted with disappointment or even anger before the Treasury secretary began his testimony before them. "I am disappointed that this Treasury report fails to acknowledge the seriousness of the Chinese currency peg," said Senator Elizabeth Dole, Republican of North Carolina. Senator Jack Reed, Democrat of Rhode Island, said: "We shouldn't scapegoat China, but we shouldn't give them a pass, either. Unfortunately, the report today does little to point in the direction of a policy. It might be a diagnosis, but it's certainly not a prescription for what we should do." Already pending in the Senate is a a bill sponsored by Senator Richard J. Durbin, Democrat of Illinois, Mrs. Dole and four of their colleagues that would levy a 27.5 percent tariff on imports from China unless it adjusts its exchange rate. Based on the $103 billion trade deficit the United States ran with China last year, such a tariff, if implemented, would be the equivalent of a $28 billion tax on Chinese imports. "The time for diplomatic niceties is past," said Senator Charles E. Schumer, Democrat of New York. Mr. Schumer, who is another sponsor o
Re: Re: strong dollar
Personally, I wouldn't jump to "realist" conclusions. It's not at all clear to me that Europe and Japan want to face the crises that would follow a precipitous fall in the dollar. Peter Chris Burford wrote: > At 28/01/02 20:28 -0800, Peter Dorman wrote: > >In the narrow sense, the strength of the dollar can be attributed to the > >weakness of other currencies, especially the yen and the euro. The > >downward pressure on those two will continue for some time, I think. If > >there were a viable rival to the dollar, "fundamentals" (the chronic US > >current account deficit) would express themselves much sooner. > > Does that not mean it is in the interests of Europe and Japan to start > creating, no doubt by stealth, an alternative to the dollar as world money? > That would mean that the relative advantage of having your currency as > world money, is shared out. > > >In a larger perspective, US foreign policy has been run to create the > >structural conditions for continuing the dollar as the reserve/key > >currency. It's not so simple, of course, but I think that's the main > >effect. If/when the dollar falls, it will set off a political crisis of > >succession as severe perhaps as the economic crisis. > > Europe and Japan will presumably have to take advantage of this under cover > of international cooperation. Could they be willing to let their currencies > fall until the point at which this undermines the advantages that the USA > gets from its strong dollar policy? > > Then would they have reforms ready that would change the system, or just > make minor repairs so it essentially continues with the mechanisms of > unequal exchange. > > I suspect that talk about international development of poor countries may > be a proxy for this power play about the shape of the world economy. > > Chris Burford > > London
Re: strong dollar
At 28/01/02 20:28 -0800, Peter Dorman wrote: >In the narrow sense, the strength of the dollar can be attributed to the >weakness of other currencies, especially the yen and the euro. The >downward pressure on those two will continue for some time, I think. If >there were a viable rival to the dollar, "fundamentals" (the chronic US >current account deficit) would express themselves much sooner. Does that not mean it is in the interests of Europe and Japan to start creating, no doubt by stealth, an alternative to the dollar as world money? That would mean that the relative advantage of having your currency as world money, is shared out. >In a larger perspective, US foreign policy has been run to create the >structural conditions for continuing the dollar as the reserve/key >currency. It's not so simple, of course, but I think that's the main >effect. If/when the dollar falls, it will set off a political crisis of >succession as severe perhaps as the economic crisis. Europe and Japan will presumably have to take advantage of this under cover of international cooperation. Could they be willing to let their currencies fall until the point at which this undermines the advantages that the USA gets from its strong dollar policy? Then would they have reforms ready that would change the system, or just make minor repairs so it essentially continues with the mechanisms of unequal exchange. I suspect that talk about international development of poor countries may be a proxy for this power play about the shape of the world economy. Chris Burford London
Re: strong dollar
In the narrow sense, the strength of the dollar can be attributed to the weakness of other currencies, especially the yen and the euro. The downward pressure on those two will continue for some time, I think. If there were a viable rival to the dollar, "fundamentals" (the chronic US current account deficit) would express themselves much sooner. In a larger perspective, US foreign policy has been run to create the structural conditions for continuing the dollar as the reserve/key currency. It's not so simple, of course, but I think that's the main effect. If/when the dollar falls, it will set off a political crisis of succession as severe perhaps as the economic crisis. I agree that it is good to be hawkish on worker rights and to recognize that this is just a small piece of the larger package bearing down on workers in the North (and South). My guess is that the two biggest pieces are the permanent debt overhang (and associated addiction to trade surpluses and inward capital flows) in the third world, and the "liberation" of financial capital from national regulation. But the importance of the global collapse of the political left (left parties in power or contending for power) should not be discounted. (The rightward shift of the social democrats such that they are no longer really "left" is one aspect of this collapse.) This collapse is a result of the economic context, but it also contributes to it. My whirlwind version of a much longer argument... Peter "Stephen F. Diamond" wrote: Isn't the strong dollar the effect of foreigners continued, increasing willingness to invest in dollar assets, as indicated by the 4-500 bn. net capital inflows into the U.S. economy per annum over the last couple of years? This would seem to contradict the idea the impact of China. I tend to think of China, for example, as having a deflationary impact on certain narrow strands of the economy, particularly characterized as having reached near-commodity like production standards requiring relatively less sophisticated labor. Though I am a hawk on advocating international labor rights, particularly in China, I am not in agreement that that is somehow the most dominant issue facing organized labor in the U.S. or Europe, relative to the dramatic restructuring of the jobs that remain and in light of the fact that something like 70% of cross border capital flows are between the triad countries.
strong dollar
Isn't the strong dollar the effect of foreigners continued, increasing willingness to invest in dollar assets, as indicated by the 4-500 bn. net capital inflows into the U.S. economy per annum over the last couple of years? This would seem to contradict the idea the impact of China. I tend to think of China, for example, as having a deflationary impact on certain narrow strands of the economy, particularly characterized as having reached near-commodity like production standards requiring relatively less sophisticated labor. Though I am a hawk on advocating international labor rights, particularly in China, I am not in agreement that that is somehow the most dominant issue facing organized labor in the U.S. or Europe, relative to the dramatic restructuring of the jobs that remain and in light of the fact that something like 70% of cross border capital flows are between the triad countries.
Re: Lindsey speaks - strong dollar
At 18/05/01 08:27 -0700, Jim Devine wrote: >Right. The US is _lucky_, since its currency is used as the world money >(as befits its economic, financial, political, and military might). >However, a rapid fall in the dollar might encourage efforts to replace the >dollar as the world currency (with the Euro? the Yen?). A little of this >can be seen in Argentina, where the iron link between the dollar and their >currency may be diluted by linking their currency (the name escapes me...) >to not only the dollar but the Euro. Interesting sideways step. A developing basket of currencies might be a step on the road to world money in name as well as in form. Chris Burford London
Re: the strong dollar
I suggest the vital thing to watch is almost invisible: that the value of the US currency does not go below the relative advantage it gets by being the world reserve currency. It is therefore important for US capitalist hegemonism that last week the euro wobbled shortly after a reduction in the bank rate, because of fears of inflation in Germany and France. It is difficult for the poor Fed. But it is used to balance acts and I am sure we are not overwhelmed with sympathy for its plight. What is needed is a clearer progressive voice, particuarly coming out of the USA, that it is in the interests of the people of the world that world money is centrally regulated in the interests of the people of the world as a whole. Chris Burford London At 17/05/01 15:39 -0700, you wrote: >Tom Sekine told me something similar to the Ohmae article that Jim posted >earlier, that Japanese money may soon return home. The Wall Street >Journal has an article today about the revival of speculation in >technology stocks. If supply shock inflation threatens >to begin there may be calls for higher interest rates. > >I cannot see how the Fed can chart a clear course in such choppy waters. > >On Thu, May 17, 2001 at 03:11:06PM -0700, Jim Devine wrote: > > The Bush administration may be committed to a "strong dollar," but > > Greenspan's rate cuts (compared to those of other central banks) encourage > > the opposite. Maybe the talk about the strong dollar is aimed at > > discouraging a sudden fall in the dollar exchange rate? A sudden fall > would > > eventually stimulate the US economy (after the J-curve effect) while > ending > > the US role as the world consumer of last resort, encouraging world > > recession. It would also encourage inflation in the US, which would > > discourage further anti-recession efforts. > > > > The funds inflow that produced the high dollar has allowed the US private > > sector to borrow like crazy, while hurting US net exports and allowing an > > amazing accumulation of external debt. One reason why there's talk about > > keeping it high is that if the dollar falls, it means a capital loss for > > those who want to be paid in Yen or Pounds or Euros. Suddenly some of > their > > assets would lose value. > > > > Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine > > > >-- >Michael Perelman >Economics Department >California State University >Chico, CA 95929 > >Tel. 530-898-5321 >E-Mail [EMAIL PROTECTED]
Re: the strong dollar
Tom Sekine told me something similar to the Ohmae article that Jim posted earlier, that Japanese money may soon return home. The Wall Street Journal has an article today about the revival of speculation in technology stocks. If supply shock inflation threatens to begin there may be calls for higher interest rates. I cannot see how the Fed can chart a clear course in such choppy waters. On Thu, May 17, 2001 at 03:11:06PM -0700, Jim Devine wrote: > The Bush administration may be committed to a "strong dollar," but > Greenspan's rate cuts (compared to those of other central banks) encourage > the opposite. Maybe the talk about the strong dollar is aimed at > discouraging a sudden fall in the dollar exchange rate? A sudden fall would > eventually stimulate the US economy (after the J-curve effect) while ending > the US role as the world consumer of last resort, encouraging world > recession. It would also encourage inflation in the US, which would > discourage further anti-recession efforts. > > The funds inflow that produced the high dollar has allowed the US private > sector to borrow like crazy, while hurting US net exports and allowing an > amazing accumulation of external debt. One reason why there's talk about > keeping it high is that if the dollar falls, it means a capital loss for > those who want to be paid in Yen or Pounds or Euros. Suddenly some of their > assets would lose value. > > Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine > -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
the strong dollar
The Bush administration may be committed to a "strong dollar," but Greenspan's rate cuts (compared to those of other central banks) encourage the opposite. Maybe the talk about the strong dollar is aimed at discouraging a sudden fall in the dollar exchange rate? A sudden fall would eventually stimulate the US economy (after the J-curve effect) while ending the US role as the world consumer of last resort, encouraging world recession. It would also encourage inflation in the US, which would discourage further anti-recession efforts. The funds inflow that produced the high dollar has allowed the US private sector to borrow like crazy, while hurting US net exports and allowing an amazing accumulation of external debt. One reason why there's talk about keeping it high is that if the dollar falls, it means a capital loss for those who want to be paid in Yen or Pounds or Euros. Suddenly some of their assets would lose value. Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
[PEN-L:6893] Summers vows to continue strong dollar
Monday May 17 1999 SCMP
Strong US dollar vowed
BARRY PORTER in Langkawi
United States Treasury Secretary-designate
Lawrence Summers has reassured financial
markets the centrepiece of US economic policy
- a strong dollar - will remain when he takes
over the reins from Robert Rubin in July.
"As Secretary Rubin and I have both said
many times, a strong dollar is very much in
America's national interest," he said.
Financial Secretary Donald Tsang Yam-kuen
yesterday welcomed the news, even though a
weaker US dollar would help restore the SAR's
lost competitiveness because of the Hong Kong
dollar peg.
"I think it is good news. I want to see a stable
US dollar," Mr Tsang said.
There had been concerns Mr Summers, now
deputy treasury secretary, may not turn out to
be as vocal a proponent of a strong US dollar
as his boss.
In his previous career as an academic, Mr
Summers published a number of articles and
books favouring the idea of trying to talk the
dollar's value down to help reduce trade
deficits, particularly those with Japan.
But Mr Summers, nominated for the top
treasury job by US President Bill Clinton last
week, yesterday insisted those were no longer
his views.
"Mr Rubin and I have seen in the same way
for many years," said Mr Summers, standing in
for Mr Rubin at a summit of Asia-Pacific
Economic Co-operation forum finance
ministers on the Malaysian resort island of
Langkawi.
"We believe that a strong dollar is very much
in America's national interests," he said.
"The dollar cannot and should not be a tool of
trade policy. Experience suggests that nations
cannot devalue to gain prosperity."
The strong dollar policy advocated by Mr
Rubin has widely been seen as a key factor in
the recent strong performance of the US
economy, by helping to keep inflation and
interest rates down.
A weaker dollar makes US exports cheaper
abroad while raising the price of imports,
which risks fuelling inflation.
Conversely, a stronger dollar makes it cheaper
for US companies and consumers to buy
foreign goods. That keeps import prices down
but has contributed to a ballooning US trade
deficit with the rest of the world, particularly in
recent years.
Japan's Vice-Finance Minister for International
Affairs Eisuke Sakakibara said Tokyo would
also be seeking to maintain its yen-dollar policy
through the transition.
"Just because the person is changing, you
cannot change the policy," Mr Sakakibara said.
Tokyo has recently favoured exchange-rate
stability above all else, believing excessive yen
strength to be undesirable at this stage for a
Japanese economic recovery.
The US dollar's continuing strength means the
Hong Kong dollar will also remain expensive
compared with many of its trading partners,
but Mr Tsang yesterday stressed the SAR's
other achievements towards regaining lost
competitiveness.
"Now wages have gone soft, rental values have
come right down and the cost of capital has
been moderating. You have to look at how
quickly the Hong Kong economy has been
adjusting," he said.
Mr Tsang also expressed hope that Mr
Summers' appointment would not impact on
the mainland's expected early entry into the
World Trade Organisation.
