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March 15, 2013

Richman Center Debate Spotlights Question of Strong Dollar Policy

Faculty and industry experts, including Professor Frederic Mishkin, discussed the idea at the March 13 event, organized with Intelligence Squared.


Does the United States need a strong dollar policy? Faculty and industry experts, including Frederic Mishkin, the Alfred Lerner Professor of Banking and Financial Institutions, debated the idea on Wednesday, March 13, at the forum, America Doesn’t Need a Strong Dollar Policy, cosponsored by the The Richard Paul Richman Center for Business Law, and Public Policy.

For the spirited discussion, which was recorded for both PBS and NPR by Intelligence Squared, Mishkin teamed up with John Taylor, the chairman, CEO, and founder of FX Concepts, to argue against the need for such a policy. Steve Forbes, the chairman and editor-in-chief of Forbes Media, and James Grant, editor and founder of Grant’s Interest Rate Observer, opposed them.

In his argument, Taylor suggested that a weak dollar can aid manufacturing. Lately, it has made it more affordable for foreign businesses to produce their goods here. “If we had a strong dollar,” Taylor argued, those companies “would go.” In essence, the government needs to keep the economy stable, he said. Rather than being locked into a strong dollar policy, it must lean into the wind, whichever way it’s blowing. “If the economy is growing too fast,” Taylor added, the government “must act to slow the economy. If the economy is growing too slowly, it must act to speed it up.”

Forbes, on the other hand, felt that weakening the currency undermines social order. Rather than knowing that your hard work will be rewarded with currency of a predictable value, he said, the economy starts to seem more like a casino — maybe the value of your dollars will go up, maybe down. “The dollar should be a fixed measure of value,” Forbes told the crowd, “simply a yardstick to make transactions easier.”

Throughout the debate, the idea of tying the value of the currency to a specified amount of gold, or using the gold standard, was a point of contention. Forbes and Grant advocated the system as a means of stability. Mishkin disagreed. Stability is important, he said, but the gold standard is not the best way to achieve it. As evidence, Mishkin cited Winston Churchill’s move to fix the British pound to gold in 1925. “Britain then had extremely high unemployment all through the Roaring ’20s,” Mishkin said, when other countries “were doing wonderfully.” In the end, he told the audience, a strong dollar policy like that would also be damaging to the United States.