This article (link here) discusses the increasing concern of the Federal Reserve about the strength of the dollar against other currencies. While the Fed originally thought that low gas prices and job creation would boost domestic growth to combat against the change in foreign currencies depreciating against the dollar, the domestic growth has been lower than expected, driving up the strength of the dollar.
This has brought the US into the "currency war" to try and remain on par with other countries depreciating their currency such as China and Japan. The article concludes that countries should be trying to create domestic demand, rather than exporting their issues elsewhere; the author says that this would need to be done by more fiscal than monetary policies.
What do you think? Can the dollar get too strong? How should foreign countries jump-start growth? What should the US do about the way other countries are changing their monetary policy?
What I think is super interesting about all this discussion on the value of the dollar is that (at least in what I have typically read) no one ever really talks about the US dollar being the preeminent reserve currency. I had no idea of this fact, even after having had international trade, until this quarter. There seems to be little analysis in media analyses of currency concerning if the US dollar being a prominent reserve currency effects US currency manipulation and value.
ReplyDeleteBy many economists the concern I have raised here is dismissed as irrelevant, while others (which I believe Wolf mentioned) think that this prevents the US from being able to have effective monetary policy, and weakens our ability to manipulate the strength of the dollar. Do others think that the US being a commonly used reserve currency effects its value? If so is this a problem?
Also, to more directly answer your question, I really appreciated this quote from the article: "The world would be better off if most governments pursued policies that boosted growth through domestic demand, rather than beggar-thy-neighbor export measures. But that would require them to rely less on monetary policy and more on appropriate fiscal policies (such as higher spending on productive infrastructure). Even income policies that lift wages, and hence labor income and consumption, are a better source of domestic growth than currency depreciations (which depress real wages)."
ReplyDeleteI think it gives perspective and insight to true longer term economic policy that supports the nation overall in the long run instead of corporate interest in the short term.
A stronger dollar, which reflects the good health of the economy, is a good news. It is a transfer of wealth for the American consumers. Domestic demand, which stimulate exports from emerging countries and from Europe to the U.S. should be supported.
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