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Bad Monetary Move: A Weak Dollar Is an America-Last Policy

dollar bills off printing press

A weak dollar is not an America-first dollar. It is an America-last strategy.

Of course, it isn’t at all clear whether pushing the value of the greenback down is the goal of the administration.  Wall Street seems divided on the matter.

For instance, a recent report from Brown Brothers Harriman states the following: “Did U.S. Treasury Secretary Mnuchin signal a change in the U.S. dollar policy?  Probably not.” The reason, BBH says, is partly because of the Treasury’s urgent need to sell a lot of debt securities, possibly more than a trillion dollars. “It beggars belief that Mnuchin was talking the dollar down, introducing new currency risk, ahead of the quarterly refunding and a significant increase in the supply of Treasuries in the months ahead,” BBH continues.

Meanwhile, Academy Securities sees it the other way. “For all intents and purposes, the ‘unofficial’ weak dollar policy became ‘official’,” states a recent Academy report. “Trump’s view on trade is simple. We want to export more. A weak dollar means more exports. Therefore, weaken the dollar.”

Still, the dollar is down against the world’s major currencies such as the British pound, the euro, and the Japanese yen. Since late 2016 the dollar index has lost more than 12 percent, according to data from the St. Louis Federal Reserve. That drop could be for a variety of reasons unconnected to policy goals, such as other economies strengthening, or different interest rate expectations.

Whether or not there is such a policy, the fact remains that weakening the dollar is a bad move for the U.S. economy, for everyone who lives there and for everyone who gets paid in U.S. dollars.

Here are some key points to consider.

Beggar-thy-neighbor. If weakening the currency was the way to increase prosperity, then every country would try to do the same at each other's expense. It would quickly become a race to the bottom that in the end would leave no country better off than at the start. The policy of competitive devaluation once got dubbed beggar-thy-neighbor because it only works at the expense of a country’s trade partners.

Dirty pool. It’s worth remembering that the goal of trade is not to shaft the other party but rather it is for both sides to benefit from the transactions.

Our trade partners will likely view such a policy as “dirty pool.” A devaluation for the sole reason of boosting exports will get seen in the same light as would surreptitiously sneaking state subsidies to exporters in the hope that the products can undercut the competition. Retaliation would likely come soon after.

A limp greenback doesn’t help exporters much. A weaker dollar may aid exporters by making the selling price of their products cheaper on the global market. But it's a temporary benefit.