A number of financial analysts are discussing the case for coordinated central bank intervention to support and strengthen the U.S. dollar. Such discussions often focus on the fact that, when one of the major economic players on the globalised financial stage isn’t carrying its weight, the whole show suffers. In the case of USD, of course, the situation is even more critical, because of its central role in world economic affairs. International reasons cited for supporting USD include:

Strengthening USD would tend to lower the cost of commodities. Because many commodities are priced in USD, this is a simple inverse ratio. Also, investors often purchase “hard” assets as a hedge against losses when the dollar is low or when equities markets are shaky. (Crude oil and gold are especial favourites, and there’s no need to mention their current elevated levels.) Lowering the cost of foodstuffs and energy, in particular, would ease the high inflationary pressures besetting many regions of the world.

Strengthening USD would also tend to ease pressure on the Euro in its role as the “anti-dollar.” This would make the Eurozone’s exports more affordable, thus easing some of the financial pressure in the region and stimulating its economic growth, which is beginning to stutter beneath high inflation and tight credit markets.

All well and good; so why hasn’t this step been taken? The fact is, there are several equally valid, albeit domestic, reasons against it.

The U.S. for the past few decades has maintained a hefty trade imbalance, caused in part by their shift from manufacturing to a more information-based economy. The high USD prior to the 2001 recession contributed to this trade imbalance by making U.S. products more expensive overseas while keeping imported goods relatively cheap.

The current weakening of USD has turned that around. The cost of imports into the U.S. has risen, giving consumers more reason to purchase domestic goods and thus stimulate their own economy, while lowering the cost of U.S. products overseas and therefore making them more competitive in the global marketplace. Indeed, exports and federal spending in the form of the tax rebate scheme are currently fueling the U.S. economy and preventing a domestic recession, instead “outsourcing” it to other countries around the globe.

High crude oil prices have also had the effect of stimulating the domestic U.S. oil research and exploration programme, as well as spurring investment in alternative energy sources such as tidal power-generation research and the construction of wind farms. Although it will be years before such projects bring a return on investment or lower energy costs, they contribute to U.S. gross domestic product immediately.

A number of U.S. and non-U.S. politicians and central bankers are contributing verbal intervention to the cause of strengthening USD. These include French Finance Minister Christine Lagarde, who called the USD’s small rally 9–13 June “very satisfying,” and Russian Finance Minister Alexei Kudrin, who attributed the crude oil pricing spike to a large extent to the weaker USD.

So far, only rhetoric has been offered as a dollar support. However, considering how quickly such credibility can be lost in the forex trading market, one wonders what the next step will be—and how soon it may be taken.