By: Robert Rosenkranz

The Debate Continues: Does the US Need a

Strong Dollar Policy?

Following the 2008 financial crisis, America’s weakened currency value and relatively low interest rates attracted an unprecedented $4 trillion in dollar-denominated debt from emerging markets worldwide.

As the US economy continues to recover and the value of the dollar rises, these debts have become a greater burden on the global financial system.

These economic developments have shed new light on a debate held by Intelligence Squared US (IQ2US) in March 2013, during which panelists Frederic Mishkin, John Taylor, Steve Forbes, and James Grant debated the merits and pitfalls of a strong dollar policy.

Overview

Discussing the bases for and against the motion “America doesn’t need a strong dollar policy,” IQ2US Chairman Robert Rosenkranz remarked,

“I think what [the supporters of the motion are] saying is that the price of the dollar is a price like any other. It's determined by supply and demand. The dollar is strong right now against the yen and against the pound. It's weak against the euro. And this is just normal economic forces operating. They're probably going to say that at times like this, with the U.S. economy weak, a weaker dollar is actually helpful, because it makes imports more expensive, makes exports cheaper, and therefore encourages domestic growth and domestic employment. And so they would argue that we should just let the dollar go where it goes […].”

He continued, “I expect to hear from [the opposition] the importance of the role of the U.S. dollar as a reserve currency. When we were on these enormous fiscal deficits for the government and trade deficits, in order for them to be sustainable, foreign central banks have to be willing to hold the overwhelming majority of their reserves in the form of U.S dollars. And if we pursue a policy that's indifferent to the value of the dollar or, worse, deliberately tries to trash the dollar, they're going to lose confidence. The result will be rising interest rates in the United States, an economic slowdown, and disaster for the U.S. government, which has so much debt outstanding.”

Does America Need A Strong Dollar Policy?

As the far-reaching global implications of the 2008 financial crisis continuing to emerge, the government’s role in determining the value of the dollar remains a widely debated topic.

The public continues to weigh in on this matter on the IQ2US online poll. Make your voice heard here: http://intelligencesquaredus.org/debates/past-debates/item/800-america-doesnt-need-a-strong-dollar&tab=2

In Conclusion