WASHINGTON— Janet Yellen is expected to affirm US commitment to market-driven exchange rates when she testifies on Capitol Hill on Tuesday and clarifies that the US is not looking for a weaker dollar for competitive advantage, according to familiar Biden transition officials with the preparation of her hearing.
The remarks would be a return to the US’s practical approach to the dollar, which President Trump has often called for a smaller dollar.
Ms. Yellen, the former chairman of the Federal Reserve, is due to appear before the Senate Finance Committee on Tuesday, considering that her appointment will be the next secretary of the US Treasury, replacing Steven Mnuchin.
Asked about the new administration’s dollar policy, Ms Yellen’s information officials said she was ready to say: “The value of the US dollar and other currencies should be determined by the markets. Markets adjust to reflect changes in economic performance and generally facilitate adjustments in the global economy. ”
Ms Yellen will also say that the deliberate targeting of exchange rates to gain an unfair trade advantage is unacceptable.
Inbound administration
“The United States is not looking for a weaker currency to gain a competitive advantage,” it is ready to say, according to officials. “We should oppose attempts by other countries to do so.”
And this is in line with the pre-Trump rule when administrations, while generally avoiding any views on the proper level of the dollar, would criticize countries that they considered to artificially influence the value of their currency for competitive advantage.
With her testimony on Tuesday, Ms. Yellen will aim to use more precise language that reflects the long-term US foreign exchange policy of the past two decades, transition officials said. For decades, the US has taken a practical approach to the dollar, allowing markets to determine its value. Since 1995, the US has intervened in the foreign exchange markets only three times – in 1998, 2000 and 2011.
Also, Ms. Yellen does not consider it useful to comment regularly on the value of the dollar and wants to specify that the US Treasury, under its leadership, would not seek to weaken its value, according to officials. Within the received administration, no other cabinet official or White House staff will talk about the dollar, officials said.
Such an approach would mark a return to more measured language around US foreign exchange policy, following frequent and sometimes confusing remarks in recent years from Trump administration officials, including President Trump.
The inauguration of President-elect Joe Biden comes, in many ways, unlike anything before, after an attack on the Chapter and amid an ongoing pandemic. But, as Gerald F. Seib of the WSJ explains, other presidents have been invested in periods of division and drama. Illustration: Adam Falk / The Wall Street Journal
For about a quarter of a century, White House and U.S. Treasury officials in Republican and Democratic administrations have generally avoided commenting on the dollar, the Federal Reserve, or daily stock market movements.
Presidential administrations in the 1970s and 1980s regularly commented on the dollar and intervened occasionally, but during the Clinton administration, Treasury Secretary Robert Rubin determined that the incumbent was the only official to comment on the dollar. He and his successors have generally limited their statements to the assertion of a broad platitude that affirms support for a strong and stable currency.
The idea, taken in the following administrations, was to prevent market volatility and misunderstanding of the US position on the currency.
Mr. Trump has strayed from the rule, dismissing support for a strong dollar and saying it has hampered efforts to reduce the US trade deficit, putting US companies at a competitive disadvantage. Trump administration officials have also considered using foreign exchange as a weapon in their trade war.
Mr Mnuchin briefly shook foreign exchange markets in 2018, when he said a weak dollar could be good for US trade, echoing Mr Trump’s statements. Mr Mnuchin later said his remarks were taken out of context.
The strong dollar benefits U.S. consumer imports, but makes U.S. exports more expensive for foreign customers, weighing U.S. producers and beating the profits of multinational companies when they convert foreign profits into dollars.
Republicans and Democrats in Congress have called for action in recent years to prevent the dollar from strengthening, at a time when the Federal Reserve is raising interest rates. Higher interest rates tend to strengthen the dollar by increasing the return on US assets, thus attracting investment and purchases of dollars abroad.
According to the Intercontinental Exchange, the dollar fell about 12% from a six-currency index in March, when the Fed cut rates to near zero amid the coronavirus-induced recession.
Write to Kate Davidson at [email protected]
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