While speaking in the U.S. in mid-November, French President Nicolas Sarkozy seemed to encourage the U.S. to intervene in the foreign exchange market to arrest the dollar’s slide.
Why should it? The dollar’s decline is not adversely impacting the U.S. economy. If anything, it’s helping to substitute foreign demand for slackening domestic demand. Imported prices, excluding fuels, aren’t rising any faster than domestic prices.
Intervention might also confuse the message U.S. policy makers have been sending to China and other countries: Let the free market determine the value of the currencies. President Bush could be the first president not to intervene in the foreign exchange market since the end of Bretton Woods, and with the Federal Reserve still looking to cut rates, a weaker dollar is consistent with current U.S. monetary policy.
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