NEW YORK (CNN/Money) - Back in the 1990s when the greenback was flagging, all Treasury Secretary Robert Rubin had to do was intone the phrase, "A strong dollar is in our national interest," and, like magic, the buck would buck up.
Those days are good and gone. Monday, President George Bush told reporters, "We have a strong dollar policy which is good for the economic vitality of this country," and the dollar dropped.
The idea of a strong dollar has always been something of a moving target -- even during the Rubin's time at the Treasury Department, market interpretations of what it meant varied. But back then, there was a sense that there was a concerted effort at the White House to craft policies this would benefit the dollar. And there was a sense that the White House genuinely believed that by keeping the dollar strong against other currencies, the country would benefit.
Rubin, in his recently published memoir, said as much.
"A strong currency means that American consumers and businesses can buy imported goods and services more cheaply and that inflation and interest rates will be lower," Rubin wrote. "It also puts pressure on American industry to increase productivity and competitiveness. These benefits can feed on themselves as foreign capital flows in more readily because of greater confidence in our currency. A weak dollar would have the contrary effects."
Such views do not dovetail with those of the current administration, which has worked to protect the interests of U.S. manufacturers through measures like the recently-repealed steel tariffs and steady pressure on China to unlink its currency from the dollar.
Furthermore, inflation is hardly seen as a problem nowadays -- policymakers would welcome a little more of it -- and interest rates are plenty low.
So what does the White House's strong dollar policy mean? The most complete answer probably came from Treasury Secretary John Snow back in the spring.
"You want the currency to be a good store of value," said Snow. "You want it to be something people are willing to hold."
Or, to put it a bit differently, you don't want people to hate the dollar so much that it provokes a dangerous run for the exits. The strong-dollar policy has become little more than a policy of trying to keep the dollar's decline orderly.
Many observers agree that this would be a good thing. The world economy has become overly dependent on the United States for economic growth and a gradually weakening dollar would go a long way toward correcting this dangerous imbalance.
The danger is that the imbalance corrects too quickly and what has so far been a steady decline in the dollar becomes something more severe. Whether the current administration would have enough credibility with currency markets to reverse such a drop is unknown.
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