Will Henry Paulson Talk the Dollar Up?
Platt, Gordon, Global Finance
US treasury secretaries with a Wall Street background have tended to preside over a strong dollar, in stated policy and in fact. The appointment of Henry Paulson. chairman and CEO of Goldman Sachs, to be treasury chief, therefore, could signal the end of the steep losses seen in the dollar so tar this year, analyst; say.
One of the first things Paulson will do as treasury secretary will be to set the record straight on US dollar policy, says Carl Weinberg, chief economist at High Frequency Economics, based in Valhalla, New York. "We believe that swapping Henry Paulson tor John Snow may make a significant difference to the course of the US dollar over his tenure at Treasury," Weinberg says. "In particular, we expect secretary Paulson to push the famous 'strong dollar policy' with a degree of vigor and energy that Dr. Snow could never muster," he says.
Coming from the world of industry, Snow acted more like a commerce secretary than a treasury secretary, Weinberg says. Snow believed that a strong dollar is not necessarily helpful to the export of goods, or to the industries that produce goods for sale overseas, he says.
"In the world of Goldman Sachs, the business is selling US securities." Weinberg says. "It is dependent on a strong and stable US dollar." This is why it was so easy for tonner treasury secretary Robert Kubin, also formerly ot Goldman Sachs, to formulate and advocate the view that a strong dollar is in the best interest ot the US, according to Weinberg. "What Rubin understood was that the job of the treasury secretary is to be the 'first salesman' of US securities, both at home and abroad," he says.
China is the largest single customer ot" US treasury securities, and Paulson understands that one does not grow one's business by angering one's largest customer, Weinberg says. "So we expect Paulson to back away from Snow's hard line on yuan revaluation because the interests of the US treasury market are not served by it," he says.
By talking the dollar up, Paulson can reinforce interest-rate fundamentals in favor of the dollar and push the dollar back toward the post-European-unification norm of $1.15 against the euro, Weinberg says.
Ashraf Laidi, chief currency analyst at New York-based MC Financial Group, says, "Considering Paulson's Wall Street experience and credibility, we regard his appointment more ot a defensive measure to prevent the dollar's downturn from accelerating into an uncontrollable pace."
Former treasury secretaries with a Wall Street background, from William Simon of Salomon Brothers in 1974 to 1977, to Donald Regan of Merrill Lynch from 1981 to 1985 and Robert Kubin of Goldman Sachs from 1995 to 1999, have served during periods of dollar strength, Laidi says.
Paulson's nomination may provide some temporary relief for the sliding dollar, Laidi says. "But we doubt that Ruilson's role at the Treasury in the next two and a half years will alter the current and emerging fundamental challenges to the US currency," Laidi says. "The US administration has grown conscious of the market realities acting against the US dollar, leaving it no choice but to resort to a figure of credibility," he adds. …