Push Yellen to a strong dollar back in the return of the Trump-Era Tone

Photographer: Alex Wong / Getty Images

Janet Yellen has visited weaker green gains for exports, but as the new secretary of the Treasury, she is under pressure to return the US to a “strong dollar” policy – and she may tremble on Wall Street if she does not.

The plunging of the greenback this year – making it the second-largest fall in the last decade and a half – has already allayed the concerns of foreign policymakers, thanks to the competitive advantage that it gives the U.S. even strong support of a weakening dollar. this could encourage tensions with trading partners.

Yellen, the election of President Joe Biden for the head of the Treasury Department, will be confirmed if taking office about a month after the previous one identified two countries as money handlers and announced i 10 on watchlist for artificial intervention. The motions, announced Dec. 16, ended a volatile period for a border currency statement under the administration of President Donald Trump that increases the focus on the Yellen approach.

The US adopted a policy of favoring a “strong” dollar in 1995, marking the end of regular calls for other countries to move their currencies higher. As the mantra grew from one Treasury chief to another, no administration from then until the Trump years communicated, as the president did in 2017, that the dollar was “growing too strong. ”

While they were sometimes consolidating a strong dollar – always from a long-term perspective – Trump and outgoing Finance Secretary Steven Mnuchin said a weaker currency would help American exports. Mnuchin also said there could be a “dollar too strong” negative short-term effects on the U.S. economy.

From the QuickTake archive: How Trump’s tweet overthrew a strong dollar policy

It’s a feeling that Yellen herself has shared a compliment she’s shared in the past.

As president of the Federal Reserve Bank of San Francisco in 2004, Yellen helped establish its a view among investors that the U.S. central bank has seen weaker currencies as helping to address the country’s current account deficit. As chairman of the Fed ten years later, she continued to make that connection, reiterating that dollar appreciation was an attraction for American exports.

Biden’s motion spokesman declined to comment on Yellen and dollar policy.

The Treasury secretary ‘s job is to oversee monetary policy, and at least two former owners of that title have persuaded Yellen to make it clear that she does not want to depreciate a dollar. That’s after Mnuchin went so far as to host Trump’s deliberations the dollar weakened strongly in mid-2019.

Previous calls

“It would be wise to actively demonstrate a devaluation or inability of the dollar,” said Larry Summers, former secretary of the Treasury under Bill Clinton and national economic adviser under Barack Obama. last month.

Summers pointed out that the central place of the dollar in the global financial system places a responsibility on the Treasury to carefully manage its responsibilities. Buying a strong dollar is “sensible” for the incoming secretary, especially with Biden’s plans for an “expansion policy,” said Summers, who contributes significantly to Bloomberg.

Hank Paulson, former secretary of the Treasury under George W. Bush, made the same point in the Wall Street Journal’s opinon column this month.

“Interest rates are at historic levels, and federal debt is a larger share of the economy than at any time since the end of World War II,” Paulson wrote. “It’s really important to go down the steep path of national debt. Another thing, the dollar will eventually be issued. Washington will not be able to pay his bills. ”

Related: Ray Dalio Warning of risk to dollar as a reserve

Those are not the kinds of worries Yellen had to focus on while in the Fed, which began in the 1990s as a board member. Instead she looked at how the exchange rate took an economic view, and what the impact would be on setting monetary policy. The following comments indicate consistent uptake over time:

• “We have a major budget deficit at the moment, which is a reduction in demand in our economy. Lower dollars should lead to more demand, ”said Yellen in September 2004.
• The downturn in the dollar since 2002 will help “improve our gaping trade deficit and thus offset some of the destructive effects of tighter credit conditions,” Yellen said in December 2007.
• “The dollar has strengthened significantly over the past year and a half,” said Yellen lawyers said in December 2015. “The strength of the dollar is one of the contributors – making monetary policy for the US more likely to follow a gradual path.”
• “A stronger dollar has a negative effect. It creates channels through which domestic demand is depressed. At the moment, net exports – well, for a long time and possibly going forward, they will slow down US growth, ”said Yellen. June 2016.

“Yellen as a Fed person can talk about the benefits of a weaker dollar in terms of inflation and exports,” said Brad Bechtel, head of foreign exchange at Jefferies LLC. “But as secretary of the Treasury the usual position is a strong dollar policy.”

The exchange rate of the dollar has been fixed by the market since the 1970s, and official comments do not usually exert much influence on the green background, but foreign policymakers still closely watched by investors.

The sounding of the new administration will be closely monitored following the latest report by the Mnuchin Treasury on foreign exchange practices. For a quarter of a year, the U.S. has held on citing any trading partner as a manipulator of their currency.

Mnuchin applied that label three times – for China from August 2019 to January, and, in a statement on Wednesday, for Switzerland and Vietnam.

Tag Manipulator

Switzerland’s central bank again quickly relied on Mnuchin’s request to return to intervention in the franc. Taiwan, which is on the so-called checklist, said the Treasury represented an error in buying foreign currency.

On that score, Yellen has previously shown a more insightful view of exchange rate movements. In 2019, she said, “It is very difficult and daunting to define when a country will play its money to reap the benefits of trade.”

“It may claim a high barrier both to implement and enforce a dollar active policy and also to be cautious in accusing trading partners of money handling,” Daniel wrote. Hui, global foreign exchange strategist JPMorgan Chase & Co., in December. . 14 reports.