Strong dollar policy

Domestically in the US, the policy keeps inflation low, encourages foreign investment, and maintains the currency's role in the global financial system.

[7][3] Global use of the dollar results from the post-WW2 economic order where the United States came out of the war relatively unscathed unlike other developed nations at the time.

The term "exchange rate weapon" was introduced by Professor of International Economic Relations at the School of International Service at American University Randall Henning to describe the threat of manipulating the exchange rate of a strong country's currency with that of a weak country's currency, in order to extract policy adjustments from their governments and central banks.

In spite of the Bretton Woods agreement, United States (U.S.) officials suspended gold convertibility and imposed a ten percent surcharge on imports in August 1971.

[15] In 1977 the Carter administration advocated and initiated the “locomotive theory”, which posits that big economies pull along their smaller brethren.

Carter’s theory asked for concessions from the smaller countries to benefit the U.S. for the high price the U.S. has incurred for their benevolence after the 1973-75 recession.

[18] A year later at the Bonn Economic Summit in July 1978, German Chancellor Helmut Schmidt acceded to expansionary fiscal policy as a part of a package of mutual concessions.

[23][24] Some U.S. trade partners expressed concerns over the magnitude of the dollar's appreciation, advocating for intervention in the foreign exchange market in order to dampen such moves.

[15] However, Secretary of the Treasury Donald Regan and other administration officials rejected these notions, arguing that a strong dollar was a vote of confidence in the U.S.

[25] At the Versailles Summit of G-7 leaders in 1982, the U.S. agreed to the requests of other member nations to allow an expert study of the effectiveness of foreign exchange interventions.

They also agreed that orderly reversal of those movements is desirable, would provide a better basis for the continued expansion of international trade and investment, and would contribute to our common objectives of sustained non-inflationary growth.

[40] Robert Rubin’s motivation for introducing the strong dollar policy revolved around his desire to keep U.S. bond yields low, and to avoid criticism from trade partners that America was deliberately devaluing its currency to boost exports.