Monetary Policy Case Study

America’s Dollar Policy: Weak Dollar vs Strong Dollar

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Abstract:
The world was on a de facto dollar standard, which meant that the American government's currency policy had the potential to affect not only international trade but also domestic policies of different countries. Since the Bretton Woods agreement, American currency policy had been alternating from a strong dollar to a weak dollar. But it was under Clinton's administration that America stated as a matter of policy that a strong dollar was in its interest. But careful analysis of the dollar's movements and the Federal Reserve's policies indicated contradictions between policy statements and state intervention. Since George Shultz (1972-1974), nearly every treasury secretary with the notable exception of Robert Rubin, made some effort to depress the value of dollar. However, their actions did not always lead to consequences they desired.

Pedagogical Objectives:

• To discuss the intricate relationship between interest rates, purchasing power and exchange rate in determining and following a currency policy namely America's dollar policy
• To discuss the future implication of the relationships among the said variables.

Keywords : Strong dollar versus weak dollar, Gold standard, Bretton Woods system, The Great Depression, Exchange rate system, The United States Federal Reserve, US monetary policy, Bank prime lending rate, US fiscal and current account deficits, Balance of payments, US exports and imports, Monetary Policy Case Study, US economy, Reserve currency, Open competitive currency markets, Interest rates