- The Washington Times - Thursday, March 6, 2003

Treasury Secretary John W. Snow sent the dollar reeling yesterday with an off-the-cuff remark that he is "not particularly concerned" about the currency's steep decline.
The dollar tumbled to a four-year low of $1.10 against the euro in Asian trading overnight after Mr. Snow told reporters on Capitol Hill late Tuesday, "I don't see anything troubling" about the dollar's loss of 21 percent of its value against the euro in the last year and somewhat less against other major currencies.
"The dollar is in the marketplace. Everything in the marketplace goes up some and falls some. It's within normal ranges," he said.
In an attempt to correct the damage to the dollar yesterday, Mr. Snow elaborated his position at a Treasury ceremony, ironically, providing his signature for new U.S. dollar bills.
"While I'm speaking about the currency, let me reiterate my support for the strong dollar," he said.
By the end of New York trading yesterday, the dollar had strengthened to $1.0960. But traders and analysts said it will be difficult for Mr. Snow to reverse the impression he made that the administration is seeking a weaker dollar to help promote economic growth through greater exports.
While a weaker dollar makes exports less expensive and more competitive, it crimps the purchasing power of consumers by increasing the cost of oil, cars, electronics and other imports. It also makes travel overseas more expensive and increases the difficulty of financing America's large trade and budget deficits.
"When you get a top-ranking official suggesting a little weakness in the currency is not a bad thing, you're going to sell the currency," said Tim Mazanec, senior currency strategist at Investors Bank & Trust in Boston. "It's a weaker dollar scenario."
Some Wall Street analysts went so far as to say the Bush administration is abandoning the "strong dollar" policy that has been in place for eight years, since former Treasury Secretary Robert E. Rubin rescued the dollar from record lows against the Japanese yen in 1994.
ABN Amro analyst Rob Hayward said Mr. Snow's remarks suggested a "de facto abandonment of the strong dollar policy" and "attempts by Treasury spokespeople to play down the remarks have provided little relief."
The dollar reached the zenith of its strength against the euro and other currencies a year ago, but then started to crumble as the U.S. economy and financial markets struggled to recover from a devastating recession and terrorist attacks.
The dollar's fall accelerated in recent months amid signs that the United States is headed into a war with Iraq without the support of several major allies.
Analysts say the weakness of the dollar is signaling that the United States already is having trouble attracting the $1.5 billion a day it needs from foreign investors to finance its $450 billion annual trade deficit and a budget deficit projected to reach $300 billion this year.
"Investors are no longer keen to finance U.S. deficits," said Dominique Barbet, analyst with BNP Paribas, a French bank. "The Eurozone is reluctant to pump cash into the U.S. economy" the way it did in the late 1990s through 2001 by investing in U.S. stocks and physical assets.
While European investors have cooled to U.S. offerings, Asian central banks have stepped in with massive purchases of U.S. Treasury bonds totaling more than $100 billion in the last year. That has enabled the United States, at least temporarily, to continue running deficits without raising interest rates to attract foreign investors.
Mr. Barbet and other analysts say there is a risk the dollar's decline will snowball and create a financial crisis, especially if the administration appears to lose control over the currency.
Repeated statements by Mr. Snow and his predecessors advocating a "strong dollar" usually have sufficed to hold any decline in the dollar to modest proportions.
Former Federal Reserve Chairman Paul Volcker warned recently that the United States appears to be running out of options for financing its huge deficits and may be nearing the end of the time it can keep consuming most of the world's savings and investment capital.
At the same time, Mr. Volcker and other central bankers have emphasized that a gradual decline in the dollar is desirable to help reduce America's trade gap and force American consumers to save and invest more on their own.
John E. Silvia, chief economist with Wachovia Securities, said he expects the dollar to keep depreciating against most major currencies, but the decline should remain manageable "because there are few attractive investment alternatives elsewhere."
"Growth in the Eurozone is sluggish and the Japanese economy remains flat on its back," he said. And investors are still skittish about investing in developing markets because they got burned by the Asian financial crisis in 1998.
"The U.S. should continue to attract its fair share of capital," he said.

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