Summers advises next Treasury chief to return to strong dollar

Former Treasury Secretary Larry Summers has advice for whoever has his old job next year: Don’t mess with the dollar.

Summers wants President-elect Joe Biden’s first Treasury chief to return to the so-called strong dollar policy that the Trump administration abandoned.

“While I do not believe the dollar has serious peer competitors, at this point given your commitment to expansionary policy it would be unwise to appear actively devaluationist or indifferent to the dollar,” he said Tuesday during a web cast hosted by the Peterson Institute for International Economics.

U.S. currency policy under President Donald Trump shifted toward a preference for a weaker dollar. Despite this, the administration took advantage of the greenback’s dominion through the use of wide-ranging and unilateral economic sanctions and tariffs.

The U.S. Treasury secretary is in charge of dollar policy. From the Clinton administration until Trump, the government adhered to the position that a strong currency is a reflection of the strength of the economy.

But under Treasury Secretary Steven Mnuchin, there was less commitment to the idea.

He and Trump have said that a weaker dollar has benefits to the economy, especially in terms of exports and purchasing power.

Mnuchin has said that an “excessively strong” dollar could hurt the economy, while Trump in 2019 considered intervening to weaken the greenback, which would have violated G-20 commitments.

Summers’s message to whomever becomes the 78th Treasury secretary: Favoring a strong dollar is “prudent.”

“It is your vital role to emphasize that if the United States over-exploits the central role of the dollar in the international financial system to pursue parochial objectives, it puts that central role at risk,” said Summers, who is a paid contributor for Bloomberg Television.

Summers also advised the next Treasury chief that his or her “legacy will lie more in the international arena than anywhere else,” referring to the need to rebuild ties with global counterparts after the Trump administration’s protectionist agenda.

While many Democrats have applauded Trump’s harsh rhetoric and actions with China, they, along with some Republicans, have chafed at the administration’s willingness to cut ties with allies.

Biden will not make key cabinet nominations for several weeks, campaign aides said on Sunday. His team is eyeing Federal Reserve Governor Lael Brainard and ex-Fed official Roger Ferguson among others.