Yellen to Make Clear U.S. Doesn’t Seek Weak Dollar
Janet Yellen is expected to affirm the U.S.’s commitment to market-determined exchange rates when she testifies on Capitol Hill Tuesday, and she will make clear the U.S. doesn’t seek a weaker dollar for competitive advantage, according to Biden transition officials familiar with her hearing preparation.
The remarks would represent a return to the U.S.’s hands-off approach to the dollar, which President Trump had deviated from by often publicly calling for a lower dollar.
Ms. Yellen, the former Federal Reserve chairwoman, is set to appear before the Senate Finance Committee Tuesday as it considers her nomination to be the next U.S. Treasury secretary, succeeding Steven Mnuchin.
If asked about the new administration’s dollar policy, officials responsible for briefing Ms. Yellen said she is prepared to say, “The value of the U.S. dollar and other currencies should be determined by markets. Markets adjust to reflect variations in economic performance and generally facilitate adjustments in the global economy.”
Ms. Yellen is also expected to say the intentional targeting of exchange rates to gain an unfair advantage in trade is unacceptable.
“The United States doesn’t seek a weaker currency to gain competitive advantage,” she is prepared to say, according to the officials. “We should oppose attempts by other countries to do so.”
That too is consistent with the pre-Trump norm when administrations, while generally eschewing any view on the dollar’s appropriate level, would criticize countries they saw as artificially influencing their own currency’s value for competitive advantage.
With her testimony Tuesday, Ms. Yellen will aim to use more precise language that reflects longstanding U.S. currency policy over the past two decades, the transition officials said. The U.S. for decades has taken a hands-off approach to the dollar, allowing markets to determine its value. Since 1995, the U.S. has only intervened in currency markets three times—in 1998, 2000 and 2011.
Ms. Yellen also doesn’t find it useful to regularly comment on the value of the dollar, and she wants to make clear that the U.S. Treasury, under her leadership, wouldn’t seek to weaken its value, according to the officials. Under the incoming administration, no other cabinet official or White House staff will talk about the dollar, the officials said.
Such an approach would mark a return to more measured language around U.S. currency policy, following frequent and sometimes confusing remarks over the past several years from Trump administration officials, including President Trump.
For roughly a quarter-century, White House and U.S. Treasury officials from Republican and Democratic administrations generally avoided commenting on the dollar, the Federal Reserve or daily moves in stock markets.
Presidential administrations in the 1970s and 1980s regularly commented on the dollar and occasionally intervened, but during the Clinton administration, Treasury Secretary Robert Rubin established that the holder of that position was the only official to comment on the dollar. He and his successors generally limited their statements to restating a broad platitude affirming support for a strong and stable currency.
The idea, carried over into ensuing administrations, was to prevent volatility in markets and misunderstanding of the U.S. position on the currency.
Mr. Trump veered away from that norm, disavowing support for a strong dollar and claiming it hampered his efforts to reduce the U.S. trade deficit by putting U.S. companies at a competitive disadvantage. Trump administration officials also considered whether to use currency intervention as a weapon in their trade war.
Mr. Mnuchin briefly rattled currency markets in 2018 when he said a weak dollar could be good for U.S. trade, echoing statements made by Mr. Trump. Mr. Mnuchin later said his remarks had been taken out of context.
The strong dollar benefits U.S. consumers of imports but makes American exports more expensive for foreign customers, weighing on U.S. manufacturers and crimping earnings of multinational companies when they convert foreign profits into dollars.
Republicans and Democrats in Congress in recent years had called for action to keep the dollar from strengthening, during a period when the Federal Reserve was raising interest rates. Higher interest rates tend to strengthen the dollar by boosting returns on U.S. assets, thus drawing overseas investment and purchases of dollars.
According to the Intercontinental Exchange, the dollar has fallen roughly 12% against an index of six major currencies since March, when the Fed cut rates to near zero amid the coronavirus-induced downturn.