Reply #18: Rethinking the dollar [View All]

http://money.cnn.com/2003/11/21/commentary/bidask/bidask/

NEW YORK (CNN/Money) - Way back in May, Treasury Secretary John Snow gave what amounted to a substantial rejiggering of what the market thought was the United States' "strong dollar" policy.

Keeping the dollar strong wasn't about keeping it strong against other currencies. Rather, it was a policy of keeping the dollar's internal qualities strong. Don't judge the greenback against those other kids in the class, judge it on its own merits.

"You want people to have confidence in your currency," said Snow. "You want them to see the currency as a good medium of exchange. You want the currency to be a good store of value. You want it to be something people are willing to hold."

But even under the Treasury Secretary's definition, the dollar doesn't seem very strong lately. These days, it seems, when the going gets tough, investors get out of the greenback.

<snip>

Second, investors appear to believe that the United States' financial stability is at higher risk than other major economic powers'. This squares with growing concerns over the current account deficit -- the gap in the United States' trade in goods and services with the rest of the world.

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I actually believe that point number 2 should have been point number one in this case.