Begger Thy Neighbor Currency Policies, Except the United States

Much ink has been spilled on the strong dollar policy articulated by every U.S. Treasury Secretary since Robert Rubin roughly 14 years ago. The U.S. Treasury officials continue with that line. In stands in stark contrast with the stance of many other countries.

The Swiss National Bank drove home that message today. It's intervention seemed particularly aggressive and apparently not just limited to the euro-Swiss cross but may have also involved sales of the franc for dollars. Ironically here is a country with a large current account surplus intervening in the fx market against a country with a large current account deficit.

The Swiss are not alone in wanting a weaker currency. Just yesterday the chief economist for the Bank of England said that the weak pound was "a key channel" to spur economic recovery. Canada, Norway, Australia and New Zealand officials have also expressed concern about their currencies's strength. A couple of weeks ago, Lux's Junker cautioned against a stronger euro. East Asia, a number of countries are believed to have intervened to slow their currencies appreciation.

Other countries, like Russia and Brazil appear to be rebuild or growing reserves. Yesterday reports indicated that Brazil's Finance Ministry wants the central bank to increase reserves to $300 bln. As of earlier this week, Brazil reported $206.26 bln of reserves. The report suggested that the Fin Min wanted the central bank to move toward $250 bln by the end of this year and $300 by the end of next year.

For sure countries do not always get what they want. Of the myriad of factors that influence, official desires may not be the most salient. Most of the major central banks, like the BOE, ECB, BOC, and RBA are unlikely to intervene to cap their currencies. Their intervention should be understood as an escalation ladder and ther verbal intervention is just the low rungs. Nevertheless the verbal intervention stands in stark contrast to the US declaratory policy.

In fact, a case can be made that it is in an increasing number of countries and stakeholders' interest for a stronger dollar. Many of these countries cited above clearly see it in their interest. From a US perspective a strong dollar may help encourage purchases of US fixed income products, of which between the government and businesses there is no shortage of supply. A stronger dollar may also help on the margins to temper some angst over inflation.