The U.S. Can Lower the Value of the Dollar

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For some reason, discussions of the U.S. trade deficit never mention the fact that the U.S. can deliberately push down the value of the dollar. An NYT article on Treasury Secretary Paulson's warnings against protectionist measures directed at China is an excellent example of the media refusing to discuss this option. At one point the article refers to a bill proposed by Senators Schumer and Graham which would require the Fed to act together with other central banks to lower the value of the dollar against the Chinese currency, if China did not take steps itself to raise the value of its currency. There are reasons that people may decide that forcing down the value of the dollar is bad policy, but it is an option and the media should report it as such. We don't have to yell and threaten China to raise the value of its currency, the Fed could take action itself, and the public should know this.

--Dean Baker

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