BofA: A brief and recent history of US FX policy

In the post-Bretton Woods era, US FX interventions have become rare in the 21st century. Influenced by the Plaza and Louvre Accords, US FX policy evolved under Secretary Robert Rubin’s “strong dollar” stance in the 1990s. Interventions were limited in the 21st century, with notable instances in 2000 and 2011. Recent administrations have generally favored market-determined exchange rates, though the Trump administration’s trade policies brought more FX discussions.

Key Points:

• 1990s Policy Shift: Post-Plaza and Louvre Accords, the Clinton administration emphasized a “strong dollar,” promoting capital inflows and lowering treasury borrowing costs.
• Limited 21st Century Interventions:
  • September 2000: US sold $1.3bn to support the EUR in a coordinated G7 intervention.
  • March 2011: US bought $1bn and sold JPY to alleviate yen appreciation pressure post-Fukushima disaster.
• Trump Administration: Emphasized trade in economic policy, with more frequent FX discussions. Treasury Secretary Mnuchin stated in 2020 that a weaker dollar was beneficial for trade.
• Current Stance: Secretary Yellen reaffirms the importance of floating exchange rates and G20 commitments.

Conclusion:

US FX interventions have become infrequent since the 1990s, with a shift towards market-determined exchange rates. Significant interventions in 2000 and 2011 were coordinated through the G7. The Trump administration brought more FX dialogue, but recent policies under Secretary Yellen continue to emphasize floating exchange rates and international commitments.

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This article was written by Adam Button at www.forexlive.com.