BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
 You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
Friday, 22 June, 2001, 13:08 GMT 14:08 UK
Business leaders seek weaker dollar
Graph indicating a rising dollar and falling pound, euro
The dollar's rise has been a drag on US exports
By BBC News Online's North America Business Reporter, David Schepp

The US economic engine has yet to recover from its nearly year-long stumble.

And despite efforts by the US central bank to revive the economy, business leaders and some Federal Reserve governors remain concerned.

Treasury Secretary Paul O'Neill
New Treasury Secretary Paul O'Neill will likely continue current strong-dollar policies

Part of the problem, American manufacturers say, is a monetary policy that touts a strong dollar.

In remarks to the press made last Thursday, the National Association of Manufacturers, an industry trade group, renewed its oft-made complaint that strong-dollar policies hurt its members, by keeping prices for American goods high on foreign markets.

The Federal Reserve itself also has cause for concern, as its five half-percent drops in interest rates this year have not had the effect of reducing the value of the dollar, which would have made exports cheaper and stimulated production within the US.

Inherited policy

The US strong-dollar policy is a holdover from the previous Clinton administration.

Then Treasury Secretary Robert Rubin championed the policy as being in the best interests of the US. It has been in force since 1995 and is credited in part for the booming '90s US economy.

The indication is very clear that the Bush administration will continue the strong dollar policy despite Treasury Secretary Paul O'Neill's background in manufacturing (he served as chief executive at aluminium-maker Alcoa).


In the production process it would be actually costing them more to produce that good. It's not quite as black as white in terms of the imported side

Sean Callow
IDEA Global
Some economists thought his background would make him more sympathetic to the causes of exporters.

That is an assessment Sean Callow, currency strategist at IDEA Global in New York, agrees with.

"There are other benefits as well, which are far more attractive than simply being able to sell goods in foreign markets."

Mr Callow told BBC News Online: "If the dollar was depreciating sharply, [manufacturers] might get an advantage when they're trying to sell their finished goods.

"But in the production process it would be actually costing them more to produce that good. It's not quite as black as white in terms of the imported side."

Committed

Writing recently in The International Economy, Lawrence Lindsey, President Bush's assistant on economic policy, said the Bush administration remains committed to a strong dollar.

"The benefits of a strong currency for our country far outweigh the costs," the former central bank governor wrote.

"Thus, a commitment to a stable, non-inflationary currency, a good business environment and open trade will remain the cornerstones of American economic policy."

Other benefits

A strong dollar also encourages investment in US equities and corporate bonds among foreign investors.

Foreign investors are attracted to US assets given the overall strength of the US economy.

Indeed that has been the case. And the inflows of capital from foreign investors have been a boon for US companies.

With lots of money around, corporations looking to borrow funds in the US will find that their local interest rates and stocks and bonds are cheaper.

Mr Callow says the strong-dollar policy has contributed to a massive issuance of corporate bonds this year - up over 70% from last year's levels.

Investor flight from the more volatile stock markets may also have bolstered bond investments this year.

"Foreigners now hold a record portion of that debt," Mr Callow says.

US issuers are rushing onto the market all manner of bonds and they are being snapped up, allowing US corporations easy access to capital.

Cheaper imports

Also, since the policies implementation in 1995, cheaper imports have helped keep a lid on inflation.

Strong dollar reduces import prices, and manufacturers have enjoyed being able to import production components at cheaper costs.

Does a strong dollar limit the effectiveness of the Fed's rate cuts?

Mr Callow says, yes, but it's limited. He also adds that it may be a worthy trade-off given all the benefits that a strong-dollar policy provides for the US economy.

See also:

15 Jun 01 | Business
14 Jun 01 | Business
16 May 01 | Business
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes