09/26/2009 05:12 am ET Updated Dec 06, 2017

Should the United States Worry About the Dollar?

One of the most contentious economic issues between the United States and the rest of the world is the parity of the U.S. dollar. Historically, the United States has not included the value of the dollar as a strategic element of its international strategy and leadership. In so doing, the country is missing an important way to create solidarity and loyalty among our trade partners and fair treatment for our creditors.

The U.S. Treasury does regularly declare that the United States prefers to have a strong currency. These statements are merely aimed at reassuring the foreign holders of U.S. debt. But fundamentally, the Treasury or the Federal Reserve could not care less. The presiding rationale is that we manage ourselves and it is up to the rest of the world to adjust to the risks.

There are four reasons for this.

First, every country in the world has a responsibility for its international balance of payment and the treatment of its currency. It is paradoxical that U.S. administrations have repeatedly tried to push some countries (especially Japan and China) to "act responsibly" and revalue their currency to reduce the trade imbalance with the United States while the U.S. has never accepted the same from its trading partners.

Second, and increasingly important, the dollar is important for our foreign trade. This helps the U.S. to manage its significant foreign debt. Now more than ever, the U.S. needs to count on the goodwill of our foreign creditors to finance the explosion of our fiscal deficit, especially the recent expenses to support the financial system. When a country owes $3,380 billion to its foreign treasury holders, it is more than an embarrassment that the U.S. dollar has depreciated by approximately two thirds vis-à-vis the Euro since its was launched in 1999.

Third, as the most important economic power in the world, the United States, has a responsibility for the good functioning of international trade and capital markets. Its leadership has been affected by the financial crisis that originated in the United States and a "laissez faire" attitude of the Bush Administration, corresponding with a period of dramatic weakening of the U.S. dollar. The ability of the United States to exercise its leadership in the free world is completely correlated to its willingness to act responsibly in its monetary and fiscal policy.

Fourth, the price of oil and commodities is generally denominated in dollars, often giving the illusion that the U.S. dollar is the standard. In fact, the demand for those products comes from countries in various monetary zones. What happens, in reality, is that the dollar price for oil generally increases when the dollar drops and decreases when it increases. This makes the cost of these commodities higher for U.S.-based industries than for European and Asian competitors. The hike of the price in 2008 coupled with a weak dollar is one of the factors behind the petrol price hikes that we all experienced.

The reality that all of this creates -- the Euro bond market has now exceeded the U.S. bond market offering foreign countries a really liquid alternative for the first time. The fact that the United States allowed its currency to drop creates a problem for our trading partners as well as for our creditors. That situation does not create the right atmosphere for international trade talks.

As the United States is engaging in a more constructive dialogue with the rest of the world, it is essential that a realistic currency policy be part of these conversations. After all, caring about the status of the dollar is in the U.S. own best interest.