Strong Dollar Policy of New Economic Team of US

US will give up a strong dollar policy?

The international foreign exchange market is observing John Snow(CSX president) designated as the new minister of finance closely. It is because he is a person of a financial circle which prefers to the strong dollar policy like Paul O`Neill, former minister of finance. O`Neill was not involved in the strong dollar policy which has maintained since the administration of Bill Clinton, but didn’t defend the decrease of dollar value actively.

▽ Observing international foreign exchange market 〓 The dollar value dropped by 6.8% against Japanese Yen and 13% against EURO this year. As George W Bush, US president designated Snow as the minister of finance on December 9, The US dollar value dropped more and so it was traded at 122.71 Yen. At the end of last week, in the New York market, the dollar was transacted at 123.58 Yen.

The decreasing tendency of US dollar was returned to a wait-and-see attitude on December 10, as the analysis said that a reshuffle of the US economic team is not due to a failure of the foreign exchange policy. Japanese experts of foreign exchange market said “We expect there will be no change in the US policy but the market will maintain the wait-and-see attitude until Mr. Snow speaks up.

▽ Color of US policy team 〓 financial ministries who were financial experts in the wall street had pursued the strong dollar policy but financial ministries who were the manufacturing businessmen had preferred to the weak dollar policy. It is because the strong dollar policy increases the demand of US investments such as stocks and bonds but the weak dollar policy is helpful to the exports of manufacturing industries. The dollar showed the decreasing tendency because of the analysis which Mr. Snow cannot turn away the request of the strong dollar policy abandonment of the manufacturing industry.

Also, it is forecasted that such ‘policy preponderance will not be severe as Steven Friedman, former president of Goldman Sachs was designated as a presidential aide.

▽ Future of US dollar 〓 US stock market has been on the decreasing tendency in the second half of the year but the dollar value was not largely changed. As the uneasiness of the international finance market becomes large and the EU and Japanese economy has still downward movement, the international investors attempt to find the US-signed assets.

However, if ‘Iraq threat’ of US will finally bring about a war, the situation will be changed. The international oil price is highly likely to increase and the US dollar value will decrease for a short term. In the Gulf war of 1991, the increase of oil price raised a worry of US economy depression and so the dollar value dropped. If the war will be ended as an intention of US, the US dollar value will be returned to its position in a moment.

The most critical variable is a success of the economy activation policy of Snow- Friedman economic team. Experts evaluated that the change of financial ministry missed an opportunity to make the additional economy stimulation policy in spite of an expansion of the financial loss. If the new economy stimulation policy brings about its effects rapidly, a reliance on US economy will be improved and the US dollar value will show the upward movement.

Rae-Jeong Park Seung-Jin Kim ecopark@donga.com sarafina@donga.com