(FORTUNE Magazine) – Being Treasury Secretary of the U.S. has its rewards. Your signature is printed on the nation's currency, for instance, and you get to work in one of the grandest offices that's ever been built. Better still, if you know what you're doing, you can get wonderful press coverage. You can even convince the munchkins of our very own Emerald City--Washington, D.C.--that you control the foreign exchange value of the U.S. dollar.

Treasury Secretary Robert Rubin has been looking pretty wizardlike recently. The dollar, you'll recall, collapsed in the foreign exchange markets earlier this year--notably against the Japanese yen, falling all the way from more than [yen] 100 as the year opened to post-World War II lows around ´80 in April. The Treasury tried to boost it higher on several occasions, either by so-called intervention (buying dollars in the foreign exchange market) or by plain old jawboning. Rubin, for example, declared in early April: "This Administration believes a strong dollar is in America's interest, and we remain committed to strengthening the fundamentals." None of it worked. On April 19 the dollar bottomed at [yen] 79.75, and it bounced around [yen] 85 through early summer.

But then came August and a couple of Treasury interventions that produced apparently spectacular results. The dollar climbed all the way to [yen] 104 in September. The New York Times reported that as it ascended past the [yen] 100 level, "Administration officials were celebrating. They gave much of the credit for the dollar's recovery to Treasury Secretary Robert E. Rubin, who in recent months has frequently used skills honed on Wall Street to catch speculators off balance."

But economics teaches that foreign currency intervention, especially the kind the U.S. does these days--relatively small amounts not designed to alter the U.S. money supply--can't permanently influence the value of the dollar. So what's really going on? No big economic policy changes--the kind of thing that does move the dollar--were made over the summer. Interest rates actually fell a bit, which would theoretically reduce the dollar's foreign exchange value.

One clue: The dollar was already moving back up against the yen in the weeks before Treasury's interventions. What probably prompted that rise were signs that the U.S. economy was strengthening--without sparking inflation--even as Japan's economic outlook dimmed. Rubin cleverly pushed the balloon skyward, so to speak, only after it had begun to rise. Says Maurice Obstfeld, an economist at the University of California at Berkeley: "Intervention sometimes appears powerful because authorities choose to act after market pressures have eased."

Why, then, are reporters and politicians--and even the odd economist--so willing to believe that the Treasury Secretary can raise and lower the dollar at will? The answer, in large part, is pure PR. Few Washington bigwigs get better press than Rubin. Granted, he's serious, competent, and self-effacing--not a common combination in the Clinton Administration. But more important, he cultivates the symbiotic relationship that exists between the Washington press corps and the Treasury Secretary. Journalists are invited to the Treasury for hushed tete-a-tetes and cosseted with "inside" information. In August, for instance, a New York Times reporter, in a front-page story, felt obliged to tell his readers that he interviewed Rubin "over a lunch of turkey salad, carrot sticks, and fruit salad in his private dining room overlooking the White House." Gosh.

Study the Washington press clippings and you'll see many things attributed to "a senior Treasury official." If it's an important subject, that's the Secretary himself, or one of a few top aides. The modern model for this sort of thing was Reagan Treasury Secretary James Baker (later Bush's Secretary of State). Baker convinced many Washington journalists that he had engineered the huge decline of the U.S. dollar in the late 1980s, even though cause and effect were anything but clear-cut. He was a master schmoozer, often virtually dictating newspaper stories that appeared the next day, while effortlessly flitting on and off the record. Baker's mastery of this peculiar art even generated an inside-the-Beltway joke. Journalist: "Mr. Secretary, I understand your black Labrador was killed in a car accident Saturday." Baker: "Off the record, he wasn't killed. On deep background, it happened Friday. On background, he's a shepherd-Lab mix, and he's brown. On the record? I don't have a dog."

That kind of flimflam works on Washingtonians as powerfully as the wizard's fire and smoke acted in Oz. Don't let it fool you. When currency values diverge, ignore that man behind the curtain and look instead at what's happening in the economy.

Research Associate Lixandra Urresta