For now, we don’t know what the US policy will be towards the dollar. If Donald Trump seriously wants a cheaper currency, the best way to achieve it might be through a multilateral agreement comparable to the 1985 Plaza Accord. But reaching such an accord would be a challenge even for a master dealmaker” like Mr Trump, and it would probably not be effective in any case.
It is far from clear what the new US administration’s policy will be towards the dollar. Mr Trump has said the dollar is “too strong” (at least against the renminbi) but he may well change his mind. If the dollar were to weaken under his watch, he might begin to take it personally! Meanwhile, his Treasury Secretary, Steven Mnuchin, has said he favours a “strong dollar” but that it can on occasion be “excessively strong”. If the Trump administration does eventually conclude that it wants a cheaper dollar, one option may be to try to emulate the 1985 Plaza Accord. On that occasion, the five then leading industrial economies agreed that an “orderly appreciation of the main non-dollar currencies…is desirable.” The US, Japan and Germany went on to sell the dollar, which duly weakened by 25% in trade-weighted terms.
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