Paulson Becomes Boxed-in by `Strong' Dollar Chant

Christopher Anstey and Kevin Carmichael
Bloomberg
Tuesday November 13, 2007

As U.S. Treasury Secretary Henry Paulson prepares to meet counterparts representing the world's biggest economies, he carries some extra baggage on the plane to Africa.

It's the 13-year-old ``strong'' dollar mantra.

Paulson, like his four predecessors, has stuck with former Treasury chief Robert E. Rubin's phrase that a ``strong'' dollar is in the U.S. interest. Officials repeated the phrase whether the dollar was rising or falling. Now, Paulson is under pressure from European policy makers to more forcefully defend the currency after it fell to a record low last week.

``It's increasingly urgent that the U.S. bolsters its rhetorical position,'' said Ernest-Antoine Seilliere, president of BusinessEurope, the European Union's employers' federation. Paulson should avoid a ``collapse of the U.S. dollar,'' he said.

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One option may be to express confidence the currency will retain its dominance in central-bank reserves and, as Paulson did last week, predict stronger American growth, analysts said.

That strategy may meet with limited success because the Federal Reserve is cutting interest rates, while banks in Europe and Asia are either tightening or keeping them unchanged. Moreover, words may carry little weight in a market that's swollen to $3.2 trillion a day.

Paulson, 61, departs today for a six-day trip to Africa that features a gathering of finance ministers and central bankers from the Group of 20 near Cape Town. The G-20 groups the largest developed countries, including the U.S. and Germany, with emerging markets such as China and India.

Full article here.

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