Thread by @Noahpinion

1/Today's @bopinion post is about the "strong dollar policy", and how it might give way to a balanced (i.e. more competitive) dollar policy.

bloomberg.com/opinion/articl…

2/"Strong dollar" is actually a misnomer, since it actually makes U.S. exporters weaker. The trade deficit, which has returned to historic highs, is almost certainly a reason people are worrying that the dollar is too uncompetitive.

3/Janet Yellen has wisely refused to back a "strong dollar" policy (Mnuchin sort of did the same, but it was hard to tell).

bloomberg.com/quicktake/almi…

4/The best option for making the dollar more competitive would be a managed devaluation, along the lines of the 1985 Plaza Accord.

investopedia.com/terms/p/plaza-…

5/But China, unlike Germany and Japan 36 years ago, is unlikely to accept such an accord.

cfr.org/blog/plaza-or-…

6/Barring a breakthrough with China (which we should continue to push for), our best option is to persuade countries to hold fewer reserves in dollars, and more reserves in a variety of other currencies -- a shift that's already happening to a slight extent.

7/One option here is for the Federal Reserve to start buying up foreign currencies and building our own forex reserves. That would signal that the USD is no longer the world's sole reserve currency.

piie.com/system/files/d…

8/Shifting the world from a dollar reserve standard to a basket of currencies would be good for the world, since it would diversify risk. If the U.S. implodes due to political violence, we don't want the entire global financial system to die.

9/Anyway, it's good that the "strong dollar" trope is dying, but we need to figure out what replaces it.

(end)

bloomberg.com/opinion/articl…