America Doesn't Need A Strong Dollar Policy

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Wednesday, March 13, 2013

It’s often taken for granted that America needs a strong dollar.  When the value of the U.S. dollar is strong relative to other currencies, it becomes attractive to investors and allows Americans to buy foreign goods and services cheaply.  But in times of recession, are we better off with a weak dollar that stimulates U.S. manufacturing by making our goods cheaper and more competitive?  Or will the loss of purchasing power and currency manipulation abroad, offset the potential gains?

  • Frederic-Mishkin90x90


    Frederic Mishkin

    Professor, Columbia Business School

  • John-Taylor90x90


    John Taylor

    Chairman and Founder, FX Concepts

  • Steve-Forbes90x90


    Steve Forbes

    Chairman and Editor-in-Chief, Forbes Media

  • James-Grant90x90


    James Grant

    Editor and Founder, Grant's Interest Rate Observer

  • Moderator Image


    John Donvan

    Author & Correspondent for ABC News

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For The Motion

Frederic Mishkin

Professor, Columbia Business School

Frederic S. Mishkin is the Alfred Lerner Professor of Banking and Financial Institutions at Columbia Business School.  He is also a research associate at the National Bureau of Economic Research, a member of the Squam Lake Working Group on Financial Reform, and the co-director of the U.S. Monetary Policy Forum.  From September 2006 to August 2008 he was a member of the Board of Governors of the Federal Reserve System.  He has also been a senior fellow at the FDIC Center for Banking Research, and past president of the Eastern Economic Association.  Since receiving his Ph.D. from the Massachusetts Institute of Technology in 1976, he has taught at the University of Chicago, Northwestern University, Princeton University and Columbia.  From 1994 to 1997 he was executive vice president and director of research at the Federal Reserve Bank of New York and an associate economist of the Federal Open Market Committee of the Federal Reserve System.

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For The Motion

John Taylor

Chairman and Founder, FX Concepts

In 1981 John Taylor founded FX Concepts, a multi-faceted investment management company, which today manages over $4 billion in currency absolute return and overlay strategies.  FX Concepts is known around the world as an innovative and highly successful manager of foreign exchange assets as well as a leader in the field of foreign exchange risk management.  Taylor has written numerous articles in investment journals and is often quoted in the popular press on financial topics.  Before starting FX Concepts, John was a vice president at Citibank, where he was the head of the bank’s marketing, advisory services, and research for foreign exchange.  Taylor is also a founder and former chairman of Franklin University Switzerland, Inc.,  in Lugano, Switzerland and  the chairman of Inspiration Biopharmaceuticals, Inc., a development stage biotech company.

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Against The Motion

Steve Forbes

Chairman and Editor-in-Chief, Forbes Media

Steve Forbes is chairman and editor-in-chief of Forbes Media. Forbes writes editorials for each issue of Forbes under the heading of “Fact and Comment.” A widely respected economic prognosticator, he is the only writer to have won the highly prestigious Crystal Owl Award four times. In both 1996 and 2000, Forbes campaigned vigorously for the Republican nomination for the presidency. Forbes is the author of Freedom Manifesto: Why Free Markets Are Moral and Big Government Isn’t (2012). Forbes serves on the boards of The Ronald Reagan Presidential Foundation, the Heritage Foundation and The Foundation for the Defense of Democracies. He is on the Board of Overseers of the Memorial Sloan-Kettering Cancer Center and on the Board of Visitors for the School of Public Policy of Pepperdine University. He previously served on the Board of Trustees of Princeton University for ten years.

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Against The Motion

James Grant

Editor and Founder, Grant's Interest Rate Observer

James Grant is the editor and founder of Grant's Interest Rate Observer, a twice-monthly journal of the financial markets. Grant originated the "Current Yield" column in Barron's before founding Grant's Interest Rate Observer in 1983. He is the author of five books on finance and financial history including Money of the Mind (1992) and Mr. Market Miscalculates (2008). A sixth book John Adams: Party of One, a biography of the second president of the United States, was published in March 2005. Grant's television appearances include 60 Minutes, The News Hour with Jim Lehrer, CBS Evening News, and a 10-year stint on Wall Street Week.  His journalism has appeared in a variety of periodicals, including the Financial Times, The Wall Street Journal, and Foreign Affairs.

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Declared Winner: For The Motion

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Voting Breakdown:

44% voted the same way in BOTH pre- and post-debate votes (17% voted FOR twice, 19% voted AGAINST twice, 8% voted UNDECIDED twice). 56% changed their minds (6% voted FOR then changed to AGAINST, 0% voted FOR then changed to UNDECIDED, 10% voted AGAINST then changed to FOR, 2% voted AGAINST then changed to UNDECIDED, 26% voted UNDECIDED then changed to FOR, 12% voted UNDECIDED then changed to AGAINST) | Breakdown Graphic

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    • Comment Link Diane Sunday, 17 March 2013 09:07 posted by Diane

      The debate was confusing. The arguments for returning to the gold standard sounded logical but there must be some reason why it's not done, and yet, the other side didn't really explain it. I assume that's because they were there to talk about what the policy should be under the present system. The debate should have been about one thing or the other.

    • Comment Link Mark Moore Friday, 15 March 2013 13:51 posted by Mark Moore

      I find it surprising neither Mishkin nor Taylor pointed out that using a gold standard doesn't eliminate the floating value of a common measure of value exchange. It only pushes the debate from what is the intrinsic value of a single US dollar to a debate of what is the intrinsic value of an ounce of gold. I'm hoping that is self-evident, but I'd be happy to elaborate if it's not.

      I believe I heard all four panelists argue that the *best* situation is a stable dollar. So, depending on how one parses the stated proposition, they were either all for the proposition, or unanimously against it. If you read it as "America doesn't need a policy that makes the dollar stronger (more valuable than the currency of our major trading partners)," then all four panelists were for the proposition. If you read it as "America doesn't need a dollar policy that is strongly enacted/enforced," then I believe all four panelists are adamantly against the proposition. Forbes and Grant would like the dollar policy to be strictly enforced with gold held in reserve. Mishkin and Taylor seem to argue for a dollar policy actively and aggressively pursuing a low inflation target.

      Assuming all four panelists believe it is in America's best interest to have a stable dollar, the real debate is about how best to achieve that goal. Forbes and Grant seem to believe that pining the dollar to gold achieves this. But, that only follows if the value of gold is stable. Unless the intrinsic value of gold is inherently stable, that would then demand a federal policy to stabilize the exchange value of gold. It seems to me a far simpler task to manage the value of a commodity one can create and destroy at will rather than a commodity that must be mined (to create more supply) or locked away (to diminish supply). It seems evident to me that the intrinsic value of gold is *not* stable since it rises and falls with the strength or weakness of the economy. Pegging the value of the US dollar to a fixed amount of gold seems indistinguishable from Argentina's failed policy of pegging their peso to the US dollar.[1]

      If the goal is a stable dollar, it seems most efficient to manipulate that commodity directly (the supply of US dollars) to counteract market forces that would increase or decrease the stable value.


    • Comment Link Should governments use their OWN insider info to benefit the nation ? Thursday, 14 March 2013 17:05 posted by Should governments use their OWN insider info to benefit the nation ?

      RE; Changing dollar policy leading to an earthquake.

      If the US acts strategically on its own self-generated
      "insider information" - the US could generate enormous
      gains by CLANDESTINELY shorting the dollar (or more likely
      using swaps and options) prior to publicly declaring
      a new weak dollar policy.

      This could generate TRILLIONS in revenue - paid by wealthy
      financial counterparties - all over the world - directly
      into the US treasury. It'd function as a much needed
      tax on the global financial sector, and perhaps remind
      them that currency speculation can be dangerous for
      them - not just for nations and their peoples.

      The Governments of the world DO NOT OWE
      financial speculators, bond traders and hedge funds
      a living. They have a moral duty to their people
      not to a small narrow industry with well funded interests.
      Countries morally have a right and a duty to use the
      "insider information" they generate through their
      own policies to improve revenues to their citizens
      and even to damage those financial opponents who may
      threatem their people's well being and their sovereignty.
      At best much of this industry - transfers wealth - in reality
      by INCREASING VOLATILITY AND RISK it may decrease
      it (like a defection against a public good/tragedy of
      the commons). It does not CREATE much new value.

      The US does not owe the financial industry arbitrage

    • Comment Link NJ Seedas Wednesday, 13 March 2013 20:14 posted by NJ Seedas

      This debate has almost been a false choice. Who is to say that one has a choice in whether the U.S. dollar is strong or weak? When most of the rest of the world would like to own the U.S. dollar and devalue their own currency, how much can the U.S. Fed or Government actually do to NOT have a strong $?

    • Comment Link NJ Seedas Wednesday, 13 March 2013 19:59 posted by NJ Seedas

      This debate keeps confusing strong vs weak dollar with de/stable currency.

      A relevant question might be how much dollar printing would be needed to get & keep the U.S. dollar low when you compare to for example Japan Yen?

    • Comment Link Marni Wednesday, 13 March 2013 18:59 posted by Marni

      loved the opening line from John Donovan "get ready to get current about currency"

    • Comment Link A Public Citizen Tuesday, 12 March 2013 14:30 posted by A Public Citizen

      I'm wondering if the debate motion might argue FOR a WEAK dollar policy ? (Rather than AGAINST a strong dollar policy - which is ambiguous).

      Arguments FOR a WEAK DOLLAR POLICY might include :

      1) Keynesian approach to economic downturn.

      2) A CORRECTION of the persistent trade imbalances with
      our BRIC trading partners. (It's hard for US employees
      to compete if the cost of living here is *8* times as high.
      A correction might reflect the new realities of the BRICs'
      emergence and a restoration of Purchasing Power Parity).

      3) Are central banks and fiscal policy - particularly in the EU
      (and until recently in Japan) - still fighting the PREVIOUS WAR ?

      Is the ongoing commitment to Austerity Policies to fight
      the boogeyman of inflation at ANY cost, the EU's new
      Maginot Line?

      Inflation might in reality be far LESS of a threat, and FAR easier
      to control, and FAR less damaging to most citizens than
      underemployment / unemployment.

      ****Perhaps the goal of policy should be to MAXIMIZE REAL
      (inflation adjusted) GROWTH - independent of NOMINAL
      inflation rate. ****

      The last serious inflation in the US was a very brief period
      in the late 1970s - but we've had *decades* of slow growth that has
      seriously harmed our people and national competitiveness.

      (4) An asset price sinkhole and the resulting debt overhang could
      be readily corrected by a weaker dollar (and even a few years of inflation) given that the current housing illiquidity is due in large part to the excessive NOTIONAL values on mortgages relative to current housing valuations.)

      I hope the moderator will consider focusing the question on whether the US needs a WEAK dollar policy.

    • Comment Link Frank Klotz Wednesday, 06 March 2013 21:36 posted by Frank Klotz

      Not about this particular issue, but a comment about the phrasing of your debate motions:

      PLEASE eschew unnecessary negatives (or really, any negatives at all) in the statement of the motion. Voting against a motion that contains one (or worse, two) negatives makes it much more difficult to tell what you are really for/against.

      In the present instance, the statement SHOULD have been "America needs a strong dollar policy." Simple, declarative; and it's obvious what votes for or against mean. Whereas, with the existing statement containing "doesn't", voting against the motion means you are for a strong dollar, and vice versa. While I am sure most people can figure it out, it's really unnecessary to make everyone go through the extra mental gymnastics.

      Again, as much as possible, eschew negatives in the statement of the motion. I would really appreciate it.

    • Comment Link oscar_the_owch Monday, 25 February 2013 17:36 posted by oscar_the_owch

      Quantitative easing can be viewed as either a negative or a positive in just the same way stimulous spending will be. And as a radical centrist I don't mind speaking of the viability of a position challenging the status quo rationale that the very, very wealthy and their profits gleaned from extractive industries are acceptable losses for the rest of the population that by some measure, really got screwed on the deals that Rockefeller et al got....railroads or airwaves..where's the value we measure currency with?
      Sometimes I figure quantitative easing and food stamps ameliorate an utterly unjust state of affairs as discreetly as possible...printing more more money to recognize the value of a greater number of valuable citizens. ..???Anyway I guess the question I think you'll be happy to be asked and perhaps happily answer:

      Isn't a strong or weak dollar dependent on how much dollar is in circulation?
      And the currency valuations, a reflection of the productivity generated by the needs of our people?
      Direct actions on livelihood rather than indirect actions, given the welfare state capitalist environs we obviously live in where banks are being bailed out and funded with free loans overnight from the f.o.m.c.????

      It's cutting tax breaks for big oil that got re-elected y'know...

    • Comment Link N.Craig Friday, 22 February 2013 18:33 posted by N.Craig

      It doesn't matter whether the dollar is strong or weak but changing from a strong dollar policy to a weak dollar could cause another economic earthquake.

    • Comment Link Herman Duenas Monday, 18 February 2013 10:05 posted by Herman Duenas

      Strong or weak is not the issue. Those in charge are supposed to ensure stability and trust in our nation's fiat currency. Stability and predictability is what allows the true economy to plan for the future and to bounce back.

    • Comment Link Peter K Friday, 01 February 2013 08:59 posted by Peter K

      As a net importer nation, the US benefits far more from a strong currency than a weak one.

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