Bloomberg Businessweek USA - 05.08.2019

◼ FINANCE Bloomberg Businessweek August 5, 2019

26

● It’s not easy to tell if the U.S. is still

committed to a strong greenback

Since the 1990s the U.S. has explicitly stated that a

strong dollar is in the nation’s best interest. Global

investors have come to take this stance for granted,

giving them confidence that American officials won’t

debase the greenback.

But the Trump administration’s chaotic messag-

ing is shaking up these assumptions. A strong dollar

is “a beautiful thing in one way, but it makes it harder

to compete,” President Trump said on July 26, add-

ing that he hasn’t ruled out taking action to weaken

the U.S. currency. His comments contradicted those

of White House economic adviser Larry Kudlow,

who just hours earlier said the U.S. wouldn’t inter-

vene in currency markets.

The public back-and-forth intensified questions

about America’s currency policy. The strong-dollar

dogma was introduced by then-Treasury Secretary

Robert Rubin in 1995 as a way to bolster foreign

demand for U.S. Treasuries, and it helped cement the

dollar’s long-standing status as the world’s reserve

currency of choice. The pledge to not devalue the

greenback encourages international investors and

U.S. trading partners to park their cash in U.S. assets.

A weaker dollar would offer some benefits.

U.S. manufacturers would get a leg up in selling

their products abroad—their wares would become

cheaper for foreign customers. At the same time,

American companies and people buying imports

would see prices rise. Abandoning the policy would

also have implications for global markets and, in the

long run, for U.S. government finances. Foreigners’

faith in the dollar makes them more willing to hold

U.S. debt, bringing down the interest rates the

Treasury Department must pay.

At the moment, attracting global money isn’t a

problem: Foreign holdings of Treasuries were at a

record high of about $6.5 trillion in May. Investors

have few alternatives in a world where many bonds

in Europe and Japan actually pay negative yields,

compared with about 2% for 10-year Treasuries.

But Trump’s push for a weaker dollar could begin

to crimp that inflow of international money, says

Catherine Mann, Citigroup Inc.’s global chief

economist.

In the eyes of Brad Setser, a former deputy assis-

tant secretary for international economic analysis at

the Treasury, the strong-dollar policy ended as soon

as Trump began complaining about the greenback’s

strength. While past administrations left comment-

ing on currency policy to the Treasury, Trump broke

from tradition early. Before even taking office, he

said in early 2017 that a strong dollar was “killing us.”

In the years since, he’s taken to Twitter to bemoan

the dollar’s strength and to take aim at Europe and

China for what he sees as currency manipulation.

“Given the thrust of communication over the past

THE BOTTOM LINE The PIC’s role as manager of the

government-worker pension fund has made it a key player in the

South African economy—and allegedly a tool of politicians.

may be split up. Buying that much Eskom debt

“is a poor investment decision,” says Pan-African’s

Abedian. “To position the fund manager as a lender

of last resort is just bizarre and very unwise.” Matjila

said in testimony that Eskom is crucial to the South

African economy, and the PIC’s success depends on

the economy’s health.

Power struggles among executives may have

added to the PIC’s problems. Last year an orga-

nizational chart seen by Bloomberg was passed

among some executives showing who were to be

ousted, including Matjila, and who were to replace

them—months before the suspensions and depar-

tures took place. Deon Botha, head of corporate

affairs at the PIC, says the that PIC is not aware

of the chart and that the suggestion of infighting

over positions is “speculative and imaginary.”

For now the asset manager, three times the size of

its nearest South African competitor, is in limbo. The

GEPF has reined in some of the PIC’s discretion on

nonpublic investments. “We want a complete over-

haul of the mandate of the PIC, but secondly we

want an opening in terms of the percentage of the

investment that goes to the PIC and other fund man-

agers,” says Tahir Maepa, one of two deputy general

managers of the Public Servants Association. “The

purpose of investing is to make money. It’s clear

that the PIC has been a cash cow for a number of

people.” �Antony Sguazzin and Janice Kew

What Does Trump Want

For the Dollar?

● Real trade-weighted

U.S. dollar index

110

100

90

80

1990 2018