US 'strong dollar' policy rings increasingly hollow: McGeever
ORLANDO, Florida, April 15 (Reuters) - U.S. Treasury Secretary Scott Bessent on Monday repeated the mantra we've heard from his nine predecessors: "We have a strong dollar policy." While the words are familiar, the conviction behind them may have softened.
It was former Treasury Secretary Robert Rubin who, 30 years ago in early 1995, declared that "a strong dollar is in our national interest," articulating what has become one of the fundamental tenets of the modern global financial system.
The 'strong dollar' policy has always been about more than just the exchange rate, although a more expensive currency can help keep inflation and interest rates low. This policy has represented the world's trust in the U.S., and, consequently, the greenback's role as the lynchpin of the global economy.
But times have changed since 1995. A lot. The world today is losing faith in the dollar, losing trust in the government institutions backing it, and losing confidence in America's role as leader of the 'free world'.
Back then, the North American Free Trade Agreement was in its infancy, China was about to emerge as an economic force, globalization was accelerating, trade and regulatory barriers were being torn down, and global capital flows were exploding. The dollar was pivotal to all that and it soared for the next seven years, right up until the dotcom crash.
The dollar slumped around 40% in the following seven years to the Global Financial Crisis and then drifted for several more years after its post-Lehman surge. But this didn't stop central banks from growing their dollar FX reserves to $4.5 trillion in 2015 from around $1 trillion in 2001.
That was a strong dollar, the world's reserve currency in its prime.
PRESSURE AT THE LONG END
The dollar has remained dominant by any measure. Central banks' dollar holdings have largely flat-lined for the past decade, but private sector buyers have increased their exposure significantly. The greenback is still the most dominant currency in FX reserves, global trade and financial market trading.
But as Steven B. Kamin, senior fellow at the American Enterprise Institute, and Mark Sobel, U.S. chairman at the Official Monetary and Financial Institutions Forum, have written, future dollar dominance rests on three factors: "preserving the underpinnings of the dollar's global role; maintaining trust in the U.S. as a reliable partner; and avoiding overuse or abuse of financial sanctions."
Doubt now hangs over all three as the Trump administration's 'America First' agenda has caused foreign investors to look at the dollar in a new light.
Last November, before his confirmation as Chair of the U.S. Council of Economic Advisers, Stephen Miran published a paper, 'A User's Guide to Restructuring the Global Trading System', in which he argued that the dollar, from a trade perspective, is "persistently over-valued in large part because dollar assets function as the world's reserve currency."
Perhaps more importantly, he also noted that while Trump supports the dollar's reserve status, he had floated "substantial changes" to dollar policy. "Sweeping tariffs and a shift away from strong dollar policy can have some of the broadest ramifications of any policies in decades, fundamentally reshaping the global trade and financial systems."
This will be achieved by a range of policies aimed at getting the rest of the world to share more of the "cost" America bears for providing the reserve currency, Miran argues, rather than replacing the dollar. Tariffs are clearly Trump's policy of choice.
The dollar will fluctuate in value and its dominance as the world's sole reserve currency may continue to slowly diminish. The Treasury Secretary will probably always pay lip service to the "strong dollar" policy - they have a duty, after all, to help keep borrowing costs low.
"It can be wheeled out in times of need and when the Treasury Secretary worries about the long end of the curve," says Steve Englander, head of global G10 FX Research at Standard Chartered.
Bessent's reaffirmation this week of Washington's 30-year-old stance, therefore, was perhaps no surprise. But it probably fell on deaf ears.
(The opinions expressed here are those of the author, a columnist for Reuters.)
By Jamie McGeever; Editing by Nia Williams
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Guardian
an hour ago
- The Guardian
Labour had the chance to finally kill off HS2. Instead, it's throwing more money into the pit
Where was the elephant in the room? It received not a mention in the spending review. In among the hospitals and schools, the highways and the prisons, the great beast wandered, a ghostly presence cursing all from whom it stole. I found it in a Whitehall handout, sandwiched somewhere between Leeds station and a Welsh level crossing. The transport department did not even include it in its railway plans for the parliament. It was relegated, as if an extinct species, to just one short sentence. It said it would spend £25.3bn 'to address longstanding delivery challenges' for HS2. Is it a train or not a train? This means that over the remainder of this parliament, Rachel Reeves's Treasury intends for HS2 to consume between a fifth and a quarter of the government's entire investment budget of £113bn. Yet this staggering fact was not so much as murmured in the Commons or in any subsequent media comment. There was certainly no mention of the project's constantly soaring cost on completion in the mid-2030s. According to the last public accounts committee report, even the slimmed down railway has raced to more than £80bn and is usually said to be approaching £100bn. Reeves's extravagant nuclear reactors will cost far less than that and she was happy to boast of them. Because few can easily distinguish billions from millions, let us look at the comparisons. Reeves now wants to build a railway from Birmingham to Euston at a price that is more than double the £39bn that she wants to spend over the same decade, 2025-2035, on social housing. Over the course of this parliament, the £25.3bn extra that Reeves will spend on HS2 is significantly more than the outlay on prisons and new classrooms. So by the next election, HS2 will have received £25.3bn, while two east-west railways, in the Midlands and the north, will have received £6bn between them and poor Wales just £300m. These projects got a mention, but why not HS2? Is it perhaps because Reeves is ashamed? She knows that HS2 will principally benefit commuters into London. London always wins the vanity projects. At first HS2 was built to be high-speed – requiring wide tunnels and pathways – and then reduced in speed but not in cost. Then it was said to be about capacity not speed, but this did not appear to lessen the cost. Then it was cut from 11 platforms to seven at Euston. This was a really stupid train. The project soon lost any serious supporters outside railway addicts and political cheerleaders. In 2021 ,after Rishi Sunak as chancellor cancelled the Leeds extension, the government's infrastructure projects authority gave HS2 a 'red rating', which bluntly meant 'delivery of the project appears unachievable'. The Commons public account committee said that 'value for money was at risk'. Then in 2023, Sunak as prime minister cancelled the second northern leg, to Manchester. This stripped the project of all 'levelling up' value. The most hair-raising Common minutes I know are those of the public account committee's inquiry into HS2 last December. They read like a banana republic at work. The company's umpteenth chief executive, Mark Wild, was just 17 days into his job, presumably on something like his predecessor's £650,000. Forty-three HS2 staff were identified as earning more than £150,000 a year. Meanwhile, whistleblowers alleged that costs forecasts were being manipulated to secure funding. One of them was last week paid more than £300,000 compensationafter being excluded from two roles as a result of his whistleblowing. The PAC chair, Geoffrey Clifton-Brown, said that HS2 is 'a cautionary tale ... in how not to run a major project' and that Department for Transport mismanagement is 'likely to have wasted billions of pounds of taxpayers money in delay and overspends.' Yet with 33,000 staff employed and 2,000 sub-contractors and consultants having already worked their way through tens of billions at current prices, HS2 clearly knew how to relieve the taxpayers of cash. It tried to claim that, unlike schools or hospitals, it was due its money 'under contract'. The PAC caved in. It merely suggested the HS2 team perform a 'reset'. This week the reset took the predictable form of a demand for more money. The Treasury caved in too. The final fiasco surrounds the funding of HS2's destination. This is planned to be Old Oak Common in Acton, due to be completed between 2029 and 2033. The supposed extension to Euston is now not envisaged until 2038, which in public investment is close to never. Work at Euston has stopped, leaving a reported 400 families evicted from their homes and 25 hectares of dirt. This is in Starmer's constituency. Sunak said Euston would one day be rebuilt 'by the private sector', possibly implying a Canary Wharf style cluster of skyscrapers overlooking Regent's Park. Even that outrage would not realise the necessary £6bn – if not £10bn. The new Euston would merely send a handful of trains an hour to a less convenient Birmingham station than the old one. With rail travel still not back at pre-pandemic levels, Euston needs not another train but a politician with guts. The whole of Whitehall now knows HS2 makes no sense. At times like this, parliament is hopeless. Most MPs, at some time in the past, voted for its various mistakes and hate changing their minds. HS2 is the Iraq war of Treasury spending. Starmer should surely know that, on the day he took office, he should have done what Chris Christie of New Jersey did. The governor simply told the contractors of two massive Hudson River tunnels to pack up and go home. Starmer could still kill it, recouping some billions from selling HS2 land. At the same time, Reeves could have gone wild. She could have doubled the number of projects she listed this week. Hospitals could have soared in number, schools multiplied, prisons renewed. I cannot believe Reeves really thinks Britain needs them less than it needs a new railway to Birmingham. As it was, she flunked it. She took a weak decision, and could not even bring herself to mention it. Simon Jenkins is a Guardian columnist
Reuters
an hour ago
- Reuters
U.S. equity fund outflows ease on cooling inflation pressure, trade deal optimism
June 13 (Reuters) - U.S. equity funds witnessed the smallest weekly net disposal in four weeks in the week through June 11 as a smaller than expected rise in consumer prices in May, and a U.S. trade deal with China, eased investor worries. According to LSEG Lipper data, investors liquidated just $212 million worth of U.S. equity funds during the week, the smallest weekly net outflow since approximately $13.65 billion worth of net purchases a month ago. U.S. sectoral funds, however, still witnessed net inflows worth a sharp $1.53 billion, the biggest amount for a week in four. Communication services, financial and industrial sectors with $529 million, $399 million and $388 million in net inflows, lead the gains. The equity large-cap, mid-cap and small-cap fund segments, meanwhile, faced a net $2.65 billion, $1.35 billion and $100 million worth of sales. Investors added money into U.S. bond funds for an eight consecutive week, with their $4.08 billion worth of weekly net purchase. They racked up U.S. short-to-intermediate investment-grade funds, short-to-intermediate government & treasury funds, and municipal debt funds worth a notable $2.37 billion, $1.02 billion and $523 million, respectively. At the same time, money market funds had a net $15.18 billion worth of weekly outflow, partly reversing a significant $66.24 billion weekly inflow, gained in the previous week.
Reuters
2 hours ago
- Reuters
EU to force companies to share details of Russian gas deals, document shows
BRUSSELS, June 13 (Reuters) - European Union companies will be required to disclose details of their Russian gas deals to the EU, under upcoming European Commission proposals to ban Russian gas imports by the end of 2027, an internal Commission document, seen by Reuters, showed. The Commission is preparing to propose legal measures to completely halt the EU's Russian gas imports by the end of 2027, and ban new Russian gas deals by the end of this year. The proposals are due to be published on June 17. An internal European Commission analysis of its upcoming proposals, seen by Reuters, said they will require companies to disclose information including the duration, annual contracted volumes, destination clause and date of conclusion of their Russian gas contracts.
