How is government managing the currency today, 3 July 2023

Foreign exchange

Currency pair	x-rates.com	OANDA
USD/EUR	0.9171	0.9168
USD/GBP	0.7890	0.7877
USD/AUD	1.5035	1.5029
USD/NZD	1.6289	1.6303
USD/CHF	0.8994	0.8957
USD/JPY	144.9275	144.9275

I am taking a different approach to following the foreign exchange markets with an emphasis on how well the Executive (Government) is managing the currency.

Article 1, Section 8 of the U.S. Constitution provides that Congress has the Legislative power to coin money and regulate the value of money. Congress has delegated this power to the U.S. Treasury and the Board of Governors of the Federal Reserve System.

The Treasury regulates the value of money when it sells debt thus impacting interest rates in addition to intervening in the currency markets when appropriate to stabilize the dollar’s value.

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The Board of Governors regulates the value of money via monetary policy. Specifically, the Fed influences the overnight interbank rate, the rate at which member banks lend each other their excess reserves. The Fed does this by setting a discount window rate, the rate at which it provides member banks with collateralized loans, and the interest on reserve balances, the rate the Fed pays member banks for keeping more cash in their vaults versus lending money out to the public.

Via monetary policy, the Fed controls the supply of money, thus influencing the interest rates at which the public can borrow money.

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With all the rumblings of de-dollarization, where nations reduce their US dollar holdings and replace them with other currencies, I think it is time to take a closer look at how well the U.S. is managing demand for its currency. If demand for the dollar falls, this may be indicia of a fall in demand for U.S. securities, labor, property, and other assets.

Alton Drew

3 July 2023

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