WASHINGTON -- Maybe
the dollar-bashing in
foreign exchange markets is
not the big problem it is cracked up to
be.
Certainly, everyone seems to have
a different set of reasons to explain the
dollar's drop.
One explanation that circulated on
Wall Street trading floors was that
exchange markets lost confidence in
President Clinton's global leadership
abilities. The President, it was said,
was waffling on policy from Haiti to
Korea. One day he was risking war
with Pyongyang, and the next he was
tacitly supporting a weaker dollar to
wring trade concessions from Japan.
It is true that Clinton's aides did
not handle the jittery dollar with
polished international skills. When the
greenback got hammered in June and
the Bank of Japan kept intervening to
prop it up, U.S. voices were silent.
Then on June 24, when U.S.
authorities finally did coordinate a
central bank effort to buy dollars around
the globe, Treasury Secretary Lloyed
Bentsen's comments of support came
across as half-hearted and late. It was a
clumsy effort.
But blaming a rudderless White
House for the dollar's weakness
stretches the point. Governments of
other major industrial nations,
especially Japan, are weaker and hobbled
with problems of their own. In the case
of Japan, the election of a Socialist-led
government raises serious questions
about whether Tokyo will be able to
proceed with the tough task of creating
a consumer society open to U.S.
imports.
Moreover, in terms of the U.S.
economy, Clinton cannot be denied his
due for presiding over a healthy
expansion that has cut the unemployment
rate to 6% while businesses have
poured capital into plant and
equipment. At the same time, Clinton has
refrained from picking a fight with the
Federal Reserve while it raised interest
rates to contain inflation.
Barry Bosworth, an economist at
the Brookings Institution, says blaming
Clinton for the weak dollar is
misguided. "Nobody should have gotten so
excited by this effort by Wall Street to
sucker the government into thinking
this is somehow a vital economic
issue. What counts is to maintain the
U.S. economic expansion without
getting inflation, and in that sense things
look extraordinarily good," he said.
Bosworth believes the dollar's
weakness stems in part from
speculation about U.S. inflation and
uncertainty about how much the Fed will raise
rates. He and other analysts also cite
reports that Japan and Germany are
experiencing economic upturns,
stirring expectations that they will raise
their interest rates and attract capital
away from the U.S.
Japan's trade surplus, which
reached nearly $60 billion with the
U.S. last year, is part of the problem
because Japanese companies keep
piling up dollars earned abroad and
converting them into yen. As the price of
the yen is pushed up, Japanese
consumers are denied imports in a society
of regulated markets and business
cartels.
According to the textbooks, a weak
dollar adds to U.S. inflation by
boosting the cost of imports. But Japan
accounts for most of the U.S. trade
deficit. Against some major trading
partners, notably Canada, the dollar is
actually stronger.
Looking back over the last several
years, the dollar is not doing so badly.
The latest reading on the Fed's
tradeweighted index for the dollar, based on
trade with 10 major industrial
countries, is 89.62. That is close to the
readings of 89.84 in 1991 and 86.61 posted
in 1992.