“It was boring, it was dull, it was repetitive, it was nonintellectual, and it worked like a charm.”

Boring. Dull. Repetitive. Nonintellectual. Alan Greenspan, former chairman of the Federal Reserve, chose those adjectives to describe the strong-dollar mantra that has dominated United States currency policy for decades. This past summer’s combative global economic climate, with US-China trade relations prompting cries of a currency war, made any plan of action that could be described as “dull” and “non-intellectual” seem inadequate.

Last summer, President Donald Trump argued that the United States’ unaggressive currency strategy put the country at a disadvantage in global trade. He accused China and the European Union of aggressively devaluing their currencies to gain an advantage in the global market. Currency devaluation helps improve a country’s balance of trade by making exports cheaper to foreign consumers and imports more expensive to domestic consumers. This happens at the expense of those who keep their currency strong.

When a country’s economy grows relative to that of its trading partners, its currency strengthens. This statement does not hold in the reverse, however; a stronger currency does not necessarily lead to economic success. Therefore, the American strong dollar rhetoric sits upon “shaky economic foundations” according to Eswar Prasad, senior fellow at the Brookings Institution and professor at Cornell University. Treasury secretaries stick to it for political reasons, primarily because they fear signaling weakness under their tenure.

President Trump, flying in the face of the strong dollar rhetoric last summer, expressed a desire to greatly devalue the dollar by lowering interest rates, a process managed by the Federal Reserve. When the Federal Reserve did lower interest rates by a quarter-percentage at the end of July 2019, he responded via Twitter:

"The Fed has made all the wrong moves. A small rate cut is not enough, but we will win anyway!"

While macroeconomic experts do not parallel Mr. Trump in tone, many agree that the United States is at an economic disadvantage due to currency nonaggression. As early as 2013, Joseph Gagnon of the Peterson Institute for International Economics wrote that “the United States is plainly suffering” by remaining “the biggest nonaggressor” in currency manipulation. In the same report, Gagnon wrote that the US current-account balance was $200 billion lower in 2011 than it would have been without currency manipulation by other countries.

Current government reports validate Gagnon’s suggestion that the United States is suffering from a lack of currency manipulation compared to its major trading partners. In May of this year, the US Department of the Treasury wrote in a report to Congress that China has a “long history of facilitating an undervalued currency” by manipulating the foreign exchange market. Continual devaluation of various currencies - including the yuan - caused the US trade deficit to widen further in 2018.

What is keeping the United States from manipulating its currency in step with the rest of the world?

Why not abandon that boring, dull, repetitive and non-intellectual plan of currency action that Greenspan described?

One set of factors – often overlooked – has to do with politics.

The Treasury secretaries’ reasons for adopting the strong dollar rhetoric in the first place demonstrate the influence of politics on macroeconomic policy. Policy makers feared looking weak, so they made sure that the economic policies they implemented made both the dollar and their tenure look strong and successful. This is just one, primarily America-centric, way that politics affects macroeconomics. The multinational stage displays an even tighter link between political and macroeconomic decision-making processes.

“Typically,” writes Gagnon about currency manipulation, “more is at stake in bilateral relations than commerce.” Macroeconomic policies that are crafted with sensitivity to political relations keep advanced economies from using fiscal policy like devaluation to spur growth, especially if effects on emerging economies are taken into account. Generally, crafting policies that make all actors feel like winners is extremely difficult and often causes political strife, as exemplified by the recent and prolonged trade conflict between China and the US.

Political relationships are necessary for governments to maintain because there are countless pressing issues besides macroeconomics that require international collaboration, such as refugee crises, acts of environmental degradation and public health emergencies – like the current COVID-19 pandemic - to name a few. Macroeconomic conflict, such as the currency war, has the potential to interfere with major geopolitical issues like those listed above.

History has shown that macroeconomic conflict within the current system of global trade happens often, as domestic economic interests clash with what is best for the global economy at large. Governments are not willing to deprioritize their short-term domestic economic interests, meaning that this conflict will continue. In fact, conflict will likely escalate due to the fact that further financial integration on a global scale will cause more currency competition.

Clearly, government management of money has major flaws. It is natural, therefore, to ask the question:

What can be done to prevent economic conflict from interfering with the political arena and vice versa?

Potential answer - Cryptocurrencies

Cryptocurrencies have the potential to act as politically independent money because they are decentralized. This means that cryptocurrencies could take both money management and ledger-keeping away from government-controlled institutions like the Federal Reserve and place it under the responsibility of a network of independent computers.

If a cryptocurrency becomes a viable means of exchange, people would have the opportunity to use money that is disentangled from governments, global imbalances and politics. Money would flow freely from peer to peer without the interference of a middleman.

Even the most widely known cryptocurrency, Bitcoin, has checkpoints to clear until it could realistically be used as a medium of exchange. No cryptocurrency in its current state could compete with the US dollar as a global reserve currency. The need for time and progress, however, does not make the prospect of a decentralized, government-independent money any less exciting. This is especially true as trust in various governments and their ability to manage money declines.

With the adoption of cryptocurrency, people would not have to rely on policy makers using a boring, dull, repetitive, nonintellectual mantra to manage financial affairs that affect them. With the adoption of cryptocurrency, macroeconomic bickering would not affect other more pressing political issues. Perhaps most importantly, with the adoption of cryptocurrency, control over money would shift away from policymakers and back to the people.

When this happens - when money resides in the people’s control - perhaps American policymakers will shift their focus towards their primary purpose: to protect the people’s inalienable rights to life, liberty, property, and the pursuit of happiness.

Only time and innovation will tell ...


I borrowed generously from the following sources:

  • Frieden, Jeffry A. Currency Politics: The Political Economy of Exchange Rate Policy. Princeton; Oxford: Princeton University Press, 2015.
  • Gagnon, Joseph (Peterson Institute for International Economics),“Currency Wars,” Milken Institute Review, January, 2013
  • Prasad, Eswar S. The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance. Princeton; Oxford: Princeton University Press, 2014.
  • U.S. Department of the Treasury Office of International Affairs, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, Washington D.C., May, 2019
  • Vigna, Paul. The Age of Cryptocurrency. St. Martin's Press