Another View: Dollar's Slide Boosts Exports

Let markets, not politicians, set currency exchange rates.

On the downside, the slide in the dollar has fueled higher import prices, most spectacularly for oil, imposing costs on U.S. consumers and producers alike. It's no coincidence that a sharply depreciating dollar has preceded every major spike in oil prices since the early 1970s.

The right response from Washington should be to let the dollar find its own value in global markets while avoiding policy mistakes that undermine its worth. Spiraling inflation, runaway government spending, hostility to foreign investment and the specter of protectionism would scare away foreign investors, causing the dollar to falter further and maybe even crash.

A freely floating currency allows our economy to adjust to shifting fundamentals. Any attempt to intervene would soon be overwhelmed by the $2 trillion exchanged daily on global currency markets. Efforts to artificially boost or depreciate a currency only postpone needed adjustments, as South Korea, Thailand, Brazil and other countries painfully discovered in the late 1990s.

Instead of manipulating the currency, policymakers should keep their eyes on the sound fundamentals that ultimately determine its value. The most important are low inflation, an open and flexible economy, fiscal restraint, and an attractive investment climate, including reasonable regulations and low tax rates. As long as the U.S. government pursues such policies, the world will want our dollars.

This article appeared in the USA Today on November 15, 2007.