In an interview this weekend on the New Hampshire TV station WMUR, unannounced presidential candidate Jeb Bush was asked whether foreign currency manipulation put US manufacturers at a disadvantage. A lot of politicians think this is a big problem, and they've been pressing the Obama administration to make it an issue in the ongoing negotiations over the Trans-Pacific Partnership. But Bush took another tack.
"You can make a case that in the last few years, given our monetary policy, we've been manipulating our currency," Bush said. "Our central bank is just printing money like nobody's business. That depreciates our currency."
Currency hawks would point out that Japan and China have been manipulating their currency in a more direct way than the US has: they print their own currency and use it to stockpile dollars. The US doesn't have significant holdings of foreign currency.
But Bush's broader point is essentially right. While the US might not be stockpiling yen and yuan like some foreign central banks do, the Federal Reserve has been expanding the money supply in a largely successful effort to boost the US economy. And that affects the value of the dollar abroad.
There are two key things to note about this. One is that while easy monetary policy has likely made the dollar less valuable than it would otherwise be, the dollar didn't actually decline much at the height of the Fed's "quantitative easing" policy between 2009 and 2013:
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Second, while devaluation is sometimes viewed as a zero-sum "currency war," the reality is that aggressive monetary easing can benefit everyone. One of the biggest problems around the world since 2008 — in the US, the EU, Japan, and elsewhere — has been inadequate aggregate demand. In the short run, another country's depreciation hurts US exporters by making our exports more expensive. But over the longer term, these policies can benefit US exporters by accelerating foreign economies and eventually leading to more exports.
Finally, it's important to remember that what's bad for US exporters is often good for US importers — and, therefore, for consumers. A cheap yen makes it hard for American companies to sell their products in Japan, but it also means American consumers get cheaper prices for a wide range of Japanese products.
