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Last Updated: Tuesday, 30 November, 2004, 12:16 GMT
Does the strong dollar policy mean anything?

Analysis
By Evan Davis
BBC economics editor

In the 1990s - dotcom era and all that - we heard a lot about a thing called the strong dollar policy.

Successive treasury secretaries of the US recited a mantra that said words to the effect that a strong dollar was in the interests of the United States.

Now probably an apology is due because reports about the strong dollar policy might have inadvertently given the impression that the US wanted the dollar to be strong in the foreign exchange markets - to hold its value against other currencies.

We were told that by 'strong dollar' the policy had always meant a currency that was hard to counterfeit

But the strong dollar in that sense had an important negative effect. It encouraged Americans to buy imports - good news for Chinese or European exporters but probably unsustainable because you have to export as well sometimes.

So it's not surprising that the dollar has fallen. It's not even bad news.

It's just what happens in life - like we don't say it's bad news when autumn follows summer. Or, I suppose, fall would be a better word than autumn when making analogies with the dollar.

Contorted

But we are left with the awkward problem of the strong dollar policy.

What does that mean if you let the currency drop when the market wants it to?

One of the more entertaining features of world currency markets has been the contorted attempts of American spokespeople to re-interpret the strong dollar policy to make it more compatible with a weak dollar.

In one ingenious re-interpretation earlier this year we were told that by "strong dollar" the policy had always meant a currency that was hard to counterfeit - a dollar tough against crime.

My suggestion to ease the u-turn would be to say that by "strong dollar" we always simply meant a dollar that didn't tear easily or disintegrate if you accidentally ran it through the wash.

But for now, paradoxically, the most vocal proponents of the original strong dollar policy are the Europeans, desperate for America to get the dollar strong against the euro again so America can buy European exports.

Yes, for the first time in years, the continentals want something emanating from America to be strong.

Funny old world isn't it.


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