May 30, 2003

The foreign exchange value of the dollar has been declining for months. Although the slide has been taking place since 2001, it was not until recently that it captured the imagination and headlines in the financial press. Concerns about the dollar were fueled by Treasury Secretary Snow's comments, which appeared to have recast the U.S. dollar policy. After his initial comments, the Secretary redefined the meaning of "a strong dollar policy." He argued with a straight face that "strong" refers to the confidence that the dollar inspires in the public and its resistance to forgery. According to Secretary Snow, his interpretation of strong has nothing to do with the value of the dollar against other currencies. The Secretary's comments notwithstanding, the dollar recently fell to the same level where it stood against the euro when it was launched at the beginning of 1999. There seems to be a consensus in the press that the dollar's behavior against the euro is a significant milestone and a harbinger of things to come. However, there does not seem to be a consensus as to what the fluctuations in the foreign exchange value foretells.

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