NCPA - National Center for Policy Analysis

A Strong Dollar Shows Economy Good

January 29, 1997

The U. S. dollar has appreciated by more than 20 percent against the German mark and 40 percent against the Japanese yen since early 1995. Some economists are attributing the dollar's appreciation to a more productive U. S. economy, increased corporate earnings, a rising stock market, contained inflation, and stable and relatively low interest rates.

Whatever the cause, pursuing a strong dollar represents a dramatic policy shift from official efforts in the late 1980s to talk down the dollar's value.

  • Treasury Secretary Robert Rubin is the first strong-dollar advocate at the United States Treasury since Donald T. Regan in Ronald Reagan's first term, observers say.
  • He has told reporters that "the key to reducing the U. S. trade deficit is our competitiveness, not (reducing the value of) the dollar."
  • When James Baker and Nicholas Brady were Treasury secretaries, they followed devaluationist policies -- seeking to spur U. S. exports by reducing the value of the U. S. currency relative to foreign currencies, thus making our products cheaper to buy overseas.
  • Critics contend that their policies undermined financial market confidence, kept interest rates high and restrained economic growth.

Champions of Rubin's strong dollar policies say he is working hand-in-glove with Federal Reserve Board Chairman Alan Greenspan to form a bipartisan vital center for monetary policy and domestic price stability.

Strong dollar advocates recommend two further moves. First, broad-based tax reform to achieve a flatter, simpler and lower tax rate system will further boost the dollar. Second, the Federal Reserve and the Treasury should adopt formal rules of monetary behavior in order to make price stability credible, perhaps a link to gold or a precious metal index, or even a satisfactorily reformed consumer price index. This, reformers believe, would a add a moral dimension to monetary policy.

Source: Lawrence Kudlow (American Skandia Life Assurance Corp.), "King Dollar," Wall Street Journal, January 29, 1997.


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