Former President Ronald Reagan always believed that a great nation needed a strong currency. So, in one of his first moves back in the early 1980s, he gave Fed Chairman Paul Volcker a green light to do whatever it took to restore the dollar's value and vanquish the hyper-inflation that had sunk the greenback so low during the stagflationary 1970s. To Reagan, the plunging U.S. dollar was also the mirror image of a rising Soviet Union, another trend that had to be stopped.
The Gipper was right on the need for a strong dollar. And with a program of tax cuts, deregulation and military buildup, he succeeded in restoring dollar-backed peace and prosperity around the world.
Today, the dollar is again in the news. Various short-sighted Wall Street economists -- along with a bunch of whining U.S. manufacturing companies and a flock of European Union central planners whose sole desire is to take America down a peg -- want to see the American currency devalued. It's a terrible vision, one that must be devoutly opposed. Fortunately, the Bush administration has thus far stayed with a strong-dollar policy.
Treasury Secretary Paul O'Neill refuses to cave in to the National Association of Manufacturers or Euro commissars or Wall Street traders. Former Clinton Treasury man Robert Rubin, who helped revive the dollar in the mid-1990s, has testified before Congress that he agrees with O'Neill. "A weak dollar would adversely affect inflation, interest rates and capital inflow," he said.
Make no mistake, the fate of the dollar is tied to the outlook for world economic health. Over the past two decades, the dollar has resumed its historic role as the world currency of choice. It is used every day by literally hundreds of millions of people across the planet. When dollars flow in, U.S. businesses and their technical know-how soon follow. Therefore, it's no surprise that the revival of the dollar coincides with the revival of economic growth and democracy and peace over the past 20 years. As the dollar stood tall, the Soviet Union evaporated. This is no coincidence. The dollar, standing atop the globe, reflects the victory of American values -- not only a free-market economy, but also political freedom and democracy.
A small while back, The New York Times ran a Sunday front-page story on the spread of English around the world. "English is the language of the Internet, of movies and music, of air traffic controllers and captains at sea," the story read. "It is essential to international business, the means of communications between Japan and Brazil, Germany and Egypt."
One could almost say that the currency follows the language. Dollars follow English. In the Internet-dominated economy of the 21st century, the dollar will cement its role as world money. The Internet is an English-speaking technology. And in the new economy of Internet commerce, it is the dollar that will finance global trade and transactions.
Greenbacks already circulate heavily in Moscow and St. Petersburg, in the Shanghai province of China, through the Pac Rim, in Mexico City, throughout the Caribbean, all the way down through the southern cone of Latin America, in Rio and Buenos Aires.
Individual governments are in denial about this. They continue to defend their national currencies. But pesos never float, they sink. And ordinary people know full well what economist Arthur Laffer coined years ago: Only the U.S. dollar has the moneyness of money.
So, it would be foolish for policymakers to attempt dollar devaluation. Even a mild form of dollar tinkering turned out to be an absolute disaster in the late 1980s, ultimately leading to the 1987 stock-market crash that foreshadowed a half-dozen years of stagnant growth. Clinton and Rubin and Greenspan were absolutely right to revive the dollar in the mid-'90s. And Bush and O'Neill today would be making a huge mistake if they change this policy.
Instead, U.S. policymakers must recognize the importance of maintaining dollar value in terms of a broad market-basket of commodities -- including gold. This would stabilize the greenback's purchasing power, rule out inflation and deflation, and maintain a pro-growth standard of dollar stability worldwide. Then, President Bush can take the stable dollar and promote it throughout this hemisphere as the currency anchor for an American free-trade zone. Dollarization would quickly spread from Canada to Argentina. And other nations throughout the world would be encouraged to do likewise.
Think of this: In the next 10 or 20 years, the greenback -- and its values of free-market economics and democratic human freedoms -- could become the currency of choice throughout Russia and China, both of whom are currently linked to the dollar. This kind of dollarization would promote world peace and prosperity in ways never envisioned by even the greatest practitioners of statecraft. In the post-Cold War era, as George Bush puts his imprint on American foreign policy, this is a thought that our financial experts should hold dear.