Saturday, January 17, 2009


I’m perplexed. The powerful president and ceo of the US Chamber of Commerce, Tom Donohue, on January 16 chose Tokyo of all places as the venue to deliver a strong but garbled message on the dollar. Apparently he was upset by the strength of the Japanese yen which has reached a 13-year high against the dollar. According to the Associated Press, Donohue said among other things that:

--A weak dollar won’t help revive the American economy;
--A weak dollar discourages capital inflows; and
--Exchange rates should be determined by markets. “If you start to manage currencies, it creates more difficulties than it creates benefits,” he argued.

Wait just a minute. First, a weak(er) dollar would help American beleaguered exporters by lowering their prices in terms of other currencies. At a time when Americans are having to adjust their overconsumption, recovery must be based at least in part on increased exports and/or reduced imports. A stronger yen helps open the Japanese market to American-made goods. That can help reduce our trade deficit and foreign borrowing. You’d think the Chamber would like that.

Second, a weaker dollar encourages holders of stronger currencies to invest in the US rather than elsewhere. Their stronger currency buys more value for the buck when the buck is cheaper. When America is a more attractive place to invest and produce, foreign investment will increase. In fact, increased investment is crucial to expand our net exports. You’d think the Chamber would like that, all of it.

By contrast, how right Donohue is about currency manipulation! Too bad he doesn’t see it where it exists. The prolonged misalignment of Asian currencies against the dollar is a prime cause of the current global financial, economic and trade mess. Why didn’t Donohue call a spade a spade and urge, as treasury secretary-designate Tim Geithner has done in the past, all Asian trading partners once and for all to stop managing their currencies? Why didn’t he denounce their mercantilist currencies policies as a protectionist burden on the rest of the world? Why didn’t he inform those export-oriented countries that a global recovery will not be sustainable unless they abandon their managed currency policies?

The Asian currencies have long been maintained at well below their market rates, and most of them still are. There still is time for Donohue to get this right. His next stops are in China and Korea, home of two of the world’s most important undervalued currencies.

Charles Blum

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