|A suitably Lilliputian currency c/o the Munchkin [sic] man.|
OK, OK so it’s Steven Mnuchin, not Steven Munchkin. However, this unfortunate naming semblance is rather appropriate for a United States rapidly receding in influence in the international political economy. Since the time of Robert Rubin as Treasury secretary–when Bill Clinton was president–it’s been customary for US officials to proclaim how their country pursued a “strong dollar policy.” Sure, some treasury honchos have been more reserved in saying it. Regardless of how various aspects policies affecting the dollar’s value–fiscal, monetary and trade policy among other things–went, though, it was never refuted outright despite the greenbacks mixed fortunes since 1995:
Since August 1995, the strong-dollar policy has consisted exclusively of periodic statements by government officials — mainly the Secretary of the Treasury, occasionally the Chairman of the Fed — insisting that the US continues to pursue a strong-dollar policy.
I suppose it was only a matter of time before we encountered a US Treasury Secretary explicitly espousing a weak dollar policy. Trump is profoundly unconcerned about foreigners, so it’s his secretary who’s now admitted to outright screwing over those holding US currency in a rather glib manner. At Davos, then, meet the Munchkin man…er, I mean Mnuchin:
A day before Trump’s scheduled arrival in the Swiss ski resort of Davos for the World Economic Forum’s annual meeting, Treasury Secretary Steven Mnuchin endorsed the dollar’s decline as a benefit to the American economy and Commerce Secretary Wilbur Ross said the U.S. would fight harder to protect its exporters.
“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos. The currency’s short term value is “not a concern of ours at all,” he said. “Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency,” he said.
The greenback, extending its 2018 slide after Mnuchin spoke, is now at its lowest in three years as measured by the Bloomberg Dollar Index. Investors have sold the currency in part because of concern over Trump’s protectionist push highlighted by this week’s slapping of tariffs on solar panels and washing machines.
This verbal intervention on Mnuchin’s part is unlikely to make others happy, especially if “America First” involves pushing the dollar down in an act of competitive devaluation. If the United States has actually been pursuing the opposite “weak dollar” policy for a long time, it’s only now that the pretense has been so brutally dispensed with.
We’re really, really far from Robert Rubin now, not only in temporal terms but also the ability of the United States’ money man to inspire investor confidence in the dollar, which was already waning before the Munchkin Man delivered the coup de grace. Sure, debasing your currency may lead to short-term gain, but a country as heavily indebted as the United States should really be more concerned about how such gimmickry will affect others’ willingness to buy and hold dollar-denominated assets in the longer term.