Geithner talks tough on U.S. dollar

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April 26, 2011, 6:54 p.m. EDT

Geithner talks tough on U.S. dollar

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — Treasury Secretary Timothy Geithner talked tough on the U.S. dollar Tuesday, saying that the United States will never attempt to lower the value of the greenback to gain an advantage in global trade.

“We will never embrace a strategy of trying to weaken our currency to try to gain economic advantage,” Geithner said, going further than his usual comment that a strong dollar is in America’s interest.

The Treasury secretary made the comment during an appearance at the Council of Foreign Relations in New York. Geithner has been in New York for two days for a series of mostly private meetings.

He made a similar comment last fall. At the time, many key emerging-market economies gathering for the Group of 20 summit in Seoul, Korea complained that the Federal Reserve’s latest $600 billion bond-buying program would lower the dollar’s value. The dispute has continued to simmer.

The dollar has been on a downtrend recently in foreign-exchange markets, with one index that measures the U.S. unit against a basket of six rivals /quotes/comstock/11j!i:dxy0 DXY -0.28% slipping to its lowest level since August 2008. Read MarketWatch’s comprehensive currency coverage.

Alan Ruskin, global head of foreign-exchange strategy at Deutsche Bank, said Geithner’s remarks are essentially a favor to Federal Reserve Chairman Ben Bernanke, who is likely to be asked about the weak dollar in his first press conference on Wednesday at the end of the Fed’s Federal Open Market Committee meeting.

“Geithner has made Bernanke’s life infinitely easier today. It should be very easy for Bernanke to simply refer to Geithner’s comments, and push aside this little hot potato,” Ruskin wrote to clients.

Bernanke is expected to defend the central bank’s loose monetary policy on Wednesday, Fed watchers say. This is likely to weigh on the dollar. Read preview of FOMC meeting.

Also on Tuesday, the Treasury Borrowing Advisory Committee, which represents the primary dealers of U.S. Treasurys on Wall Street, warned over the impact of not raising the debt ceiling in a letter to Geithner. See story on primary dealers.

The letter raised six concerns: that foreign investors could reduce their Treasury purchases on a permanent basis, or even sell some holdings; that a rating agency could downgrade the U.S. sovereign-credit rating; that there could be a run on money-market funds; that there could be a disruption in the $4 trillion Treasury financing market; that a rise in borrowing costs and contraction of credit could impact economic growth; and that participants could act before a default actually occurs, which could distort money-market rates.

In his remarks to the Council, Geithner said he was trying to build a bipartisan consensus to bring down the federal deficit.

But the challenge ahead for the Treasury secretary was clear after House Speaker John Boehner threatened in an interview Monday with Politico not to even schedule a vote on raising the debt limit, unless the Obama administration gives in to Republican demands on spending cuts.

“The politics feel terrible now,” Geithner said. “Anyone who looks at Washington from a distance thinks — well, I don’t know what they think,” he said to laughter.


Greg Robb is a senior reporter for MarketWatch in Washington.

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