Editor’s Note: Guest columnist Daniel McDowell is filling in this week.
“The exchange rate is the most important price in any economy, for it affects all other prices,” as Harvard political economist Jeffry Frieden put it. Since the U.S. dollar is the most widely used currency for cross-border exchange and investment, it is fair to say its value is the most important price in the global economy. Though American presidents have limited control over the dollar’s value, their words and their policy choices still carry weight. After four years of an unconventional dollar policy under President Donald Trump, what should the world expect from Joe Biden’s incoming administration?
President Biden will face the same trade-offs that all previous presidents have faced when it comes to the dollar. In general, a weaker dollar is good for economic growth and domestic producers because it makes American products more competitive relative to foreign-made products at home and abroad. With the U.S. economy facing a historic economic challenge because of the coronavirus pandemic, there are good reasons for Biden to favor a weak dollar.