And when asked, Paulson will toe the party line, said Ron Simpson, managing director of foreign-exchange analysis at Action Economics in New York. If he doesn’t, the dollar could fall sharply on global markets.
“I don’t think there’s a major shift here — maybe some nuances — but these nuances have been building for a while now, certainly since China came into the picture,” Simpson said. “I don’t think it’s a big secret that the administration would be happy to see a lower dollar.”
Investors are particularly sensitive to Treasury’s policy because of the central role of the greenback that many expect to play in fixing the so-called global imbalances – a term seen as code for the huge U.S. current-account deficit.
A weaker dollar, many analysts say, would crimp Americans’ appetite for imports, make U.S. exports cheaper on global markets and therefore help shrink the deficit.
The Group of Seven richest countries and the International Monetary Fund promote the ideas that the United States must cut its fiscal deficit, China must let its currency trade more freely, Japan and the rest of Asia must improve domestic demand and Europe must make its economy more flexible.
But both groups have been careful not to call for a weaker dollar, for fear of triggering a run on the greenback that would wreak havoc on world markets and economies.
Meanwhile, Paulson is on record as welcoming an “orderly” decline in the U.S. currency.