Donald Trump may have a point: the dollar is indeed strong.Judging from the Federal Reserve's own trade-weighted dollar index,the U.S. currency is now around 7 percent above its four-decadeaverage.


A strong dollar isn't necessarily detrimental to the economy,but it may torpedo Trump's vision to revive America's manufacturingsector. Before his comments to the Wall Street Journal that thestrong dollar is “killing” the ability of U.S. companies tocompete, the 22 percent appreciation since mid-2014 had alreadyworsened the trade deficit, while the full effect hasn't yetpercolated into the real economy.


What can Trump and his administration do if they want a weakerdollar? Here are five options.

1. Jawboning

Talk is cheap, but it has worked for Trump sofar. If history is any guide, traders stop listening to governmentofficials and central bankers in the absence of concrete policiesthat target exchange rates.


Just look at Japan. When Abenomics lost steam and tradersstarted to bet on a stronger yen, Finance Minister Taro Asorepeatedly warned that the surge had been disorderly and one-sided,hinting that the government could intervene to weaken it. The yenended up surging as much 22 percent last year.

2. Coordinated Intervention

The Treasury Department has worked with central banks worldwideto bring down and drive up the dollar over the past threedecades most recently in 2011 to help curb theappreciation in the yen. The problem is coordinated interventionhas gone out of vogue in recent years, partly because analystsaren't sure whether it really works when officials are trying tosway a vast market like the dollar, which sees about $5 trillionexchange hands every day.


Also, most currency interventions are sterilized, meaningcentral banks would inject or take out liquidity on the side aspart of the transaction to maintain the level of money supply. Anargument “common among economists, was that sterilized interventionhas no long-lasting effect and unsterilized intervention is justanother kind of monetary policy,” Jeffrey Frankel, an expert incurrency intervention and a professor at Harvard University'sKennedy School of Government, wrote in apaper published December 2015.

3. Unilateral Intervention

Going it alone is simply a taller order than having the backingof your allies, in this instance the Group of Seven nations. A2013 communique among G-7 nations denounced unilateralintervention and agreed not to target exchange rates.


Yet the statement acknowledged that “excessive volatility anddisorderly movements in exchange rates can have adverseimplications for economic and financial stability.” The Trumpadministration could spin the same communique to make the case forintervention.


While Charles St-Arnaud, a senior economist at Nomura SecuritiesInternational, doesn't think Trump will unilaterally weaken thedollar, “the U.S. can have a good argument,” he said. “The dollarhas appreciated a lot in a rapid pace. They can always argue it'sdifficult for the economy to adjust to such a big, broad-basedappreciation.”


Unilateral intervention poses the risk of turning into afull-blown currency war. If the Treasury decides to break from thepack and starts weakening the dollar, other countries may bejustified to do the same.

4. Creation of Sovereign Wealth Fund

Nomura also floated a rather left-field option: creating asovereign wealth fund. Many emerging nations and even developedones such as Norway have coffers that buys foreign assets rangingfrom government bonds to real estate, and there's no reason why theU.S. can't follow.

5. Non-Currency Intervention

In the end, Trump may just focus on protectionist policies thatproduced a weaker dollar as a natural consequence. He has vowed torenegotiate trade treaties and impose import tariffs on China andMexico, moves that may destabilize the dollar and engineer a morefavorable exchange rate for America's exporters.


Bloomberg News


Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including and

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.