U.S. Dollar Strength Important | Seeking Alpha

This year, the BRICS group is going to meet in Russia on August 20-22.

The BRICS group includes eleven nations now. The original four, Brazil, Russia, India, and China have been joined by South Africa, hence the s.

But now, this founding group has been joined by the United Arab Emirates, Ethiopia, Argentina, Egypt, Iran, and Saudi Arabia.

Quite a formidable crew.

Although the rhetoric has not been as loud this year, one of the aims of this group of nations is to replace the U.S. dollar as the reserve currency of the world.

A lot of talk has gone around the world in recent years, about replacing the U.S. dollar, but, as of this time, the BRICS have made very little headway in actually weakening the place of the U.S. dollar in the world.

Still, the effort is there and it is something that the United States cannot forget.

I would go further and argue that the United States absolutely should work to keep the U.S. dollar as the world’s reserve currency.

First of all, the United States deserves to have the world’s currency because of the role the U.S. has played in the world since the end of World War II.

Second, the current world system is working very well and there is really no reason at this time…other than vanity…for others to work to replace the U.S. dollar.

Third, we are going through a time of immense uncertainty and the world system needs the stability and foresight connected with the current evolution of the world monetary system.

The innovation going on in the financial world is incredible, and the global system needs the foundation and stability that the U.S. dollar system provides in order for “the financial world” to progress on in terms of new technology, new tools, and new institutions.

Not only are there digital currencies to worry about, but there are also cryptocurrencies to deal with.

Furthermore, as information technology grows and matures, there is artificial intelligence and deep learning to handle.

And, these are just the major elements in the change taking place.

Furthermore, the current financial environment contains its own major areas of uncertainty, an uncertainty that requires close watching and an agile ability to react to events as they take place.

One of the major factors the U.S. is going through right now is a presidential election.

The Federal Reserve has completed 28 months of quantitative tightening.

The Federal Reserve is facing more and more pressure to lower its policy rate of interest.

The Fed has held off any movement in this rate so that it can be more sure that the time is right to begin lowering U.S. interest rates. Chairman Jerome Powell has been very, very careful to not move too soon.

But, there is a presidential election taking place in November and, historically, the Federal Reserve has not made monetary policy changes during this time so as not to be accused of making decisions to help favored candidates get elected…or, re-elected.

Already, one of this year’s candidates, Mr. Trump, has requested the Fed not to make any interest rate moves right before the election.

Still, there is plenty of “hot air” piercing the air relating to whether or not the Federal Reserve should lower its policy rate or not in September…or so another time before the election.

The BRICS summit and the U.S. dollar situation play into this picture.

In order to continue to support a strong U.S. dollar, the United States…the Federal Reserve… needs to keep interest rates high so as to support the U.S. dollar in world markets.

Some countries and political alliances have lowered their interest rates this year and, as a consequence, fallen in value relative to the U.S. dollar.

If the Federal Reserve were to lower its policy rate of interest this fall, the value of the U.S. dollar would fall…and it would fall right before the November election.

Here is what the U.S. dollar has done since the Biden administration took control of the government in 2021.

The basic trend of the value of the U.S. dollar since the beginning of the Biden administration has been to get stronger.

Let’s look at the relationship of the U.S. dollar to the Euro.

S

Here we see that at the start of the Biden administration, it took more than $1.20 to purchase one Euro.

Currently, it takes just under $1.0900 to purchase one Euro.

So, whether stated strongly or not, the economic policy of the Biden administration and the Federal Reserve during the Biden administration have contributed to a much stronger dollar than was inherited from the administration just before.

I believe that maintaining this “strong dollar” has been a part of the government’s fiscal policy and also a part of the Federal Reserve’s monetary strategy.

I don’t believe the statistics would have been as stable as they have been if this strategy was part of what the administration wanted to accomplish.

I believe that setting out to achieve this strong a dollar and actually achieving the result that has been produced has helped to strengthen the “trust” the investment community now has in this Federal Reserve administration.

I have just written a post that discusses the “trust that the investment community has in the current Federal Reserve leadership.

And this “trust” will play an important role in any success the Fed has in accomplishing what it wants in the near future.

My preference, as I have written before, is for the Federal Reserve to get the value of the U.S. dollar down to where it costs only $1.00 to $1.05 to purchase one Euro.

Thus, I would like to see the Federal Reserve maintain an interest rate level that supports the U.S. dollar at this level.

But, I also would like to see a substantial reduction in the Federal budget deficits that are now been recorded.

I want to see a strong U.S. dollar and I want to see the U.S. government operating closer to a budget that is balanced, and I want to see lower inflation.

This is an environment in which the United States maintains its role in the world.