WASHINGTON — Treasury Secretary Henry Paulson will tell his Group of Eight counterparts that “strong” U.S. long- term fundamentals will be reflected in the dollar and said Tuesday he would “never” rule out intervening in the currency-market.
“The long-term fundamentals in my judgment are not only strong, but they compare favorably with those of other industrialized major economies,” Paulson told Bloomberg Television. “Those long-term fundamentals are going to be reflected in our currency value.”
The comments reflect a toughening in U.S. officials’ language supporting the dollar after the currency’s decline threatened to spur U.S. inflation. Federal Reserve Chairman Ben Bernanke said last week that the central bank is “attentive” to the value of the dollar.
Finance ministers from the G-8 nations will meet Saturday in Osaka, Japan. The dollar, measured against the currencies of major U.S. trading partners, has advanced 1.2 percent since ministers and central- bank governors from the Group of Seven major nations met in April. The U.S. currency has slid 33 percent since 2002.
When asked about comments Monday about the option of intervening in currency markets, Paulson said he stood by them and added that “I never like to say never.” When asked whether the G-8 would mention currencies in its statement, Paulson said he wouldn’t speculate on the contents.
“I don’t think you should expect to see us break a lot of new ground here,” he added.
The Treasury chief rejected the argument that investor speculation has spurred the jump in energy costs. Oil has doubled over the past year and reached a record of $139.12 a barrel last week. Paulson also dismissed any legislation from Congress aimed at addressing the issue.
The increasing energy prices “are a strong head wind, they are a real burden on Americans and a burden on our economy, and they risk prolonging or lengthening this economic slowdown,” Paulson said.
Still, he added, “I don’t believe that legislation will be effective,” citing that “the forces driving this are supply and demand.”
U.S. lawmakers and industry leaders have pressed for further appreciation of the Chinese yuan to narrow the American trade deficit.
“Continued movement and greater flexibility are still needed” in the yuan, Paulson said in a speech in Washington.
He meets with a Chinese delegation next week for twice- yearly talks.
Pros and cons of a weak dollar
The weak U.S. dollar is helping to push oil and gasoline prices higher, making imported goods more expensive for Americans and overseas vacations more costly. At the same time, it has helped U.S. exporters. A primer on the strength of the dollar:
Q. What is meant by a “weak” dollar and a “strong” dollar?
A. If the dollar gains against other currencies, it is said to be strengthening. Its buying power increases relative to the other currencies. If its exchange rate declines against other currencies, it is said to be weakening.
Q. What are the advantages of a strong dollar?
A. A strong dollar lowers the price to U.S. consumers of foreign products and services. That helps to keep inflation in check. U.S. consumers also benefit when they travel to foreign countries.
Q. And the disadvantages?
A. U.S. products become more expensive overseas, and it’s harder for foreign investors to buy dollar-based securities.
Q. What are the advantages and disadvantages of a weak dollar?
A. It’s basically the mirror image. U.S. manufacturers and other exporters benefit as American products become relatively cheaper. More foreign tourists can afford to visit the United States. But it costs more for Americans to travel abroad or buy imported products, fueling inflation.
Q. What’s the relationship between a weak dollar and oil and gasoline prices?
A. The more the value of the greenback goes down, the more it costs to buy the same barrel of oil. Of course, other factors are involved: soaring demand from China and India, political turmoil in some oil- producing regions, the inability or refusal of major oil-exporting countries to boost production, and market speculation.
Q. How long has this been going on?
A. The dollar has been on an extended slide against other major currencies, especially the euro and the Japanese yen, for about five years — a period during which the U.S. trade deficit generally continued to widen and the economies of Europe have expanded.
Q. What can be done to stop or reverse the dollar slide?
A. Some traders believe the dollar’s slump is nearing an end. The Fed could start raising interest rates again. That would strengthen the dollar by making U.S. investments more attractive to foreign investors. Another option is for the government to buy U.S. dollars on international currency markets — called intervention — acting on its own or in concert with other countries.
The Associated Press
