Concept
The strong dollar policy is the United States economic policy based on the assumption that a strong exchange rate of the United States dollar (where a smaller dollar amount is needed to buy the same amount of other currency than would otherwise be the case) is in the interests of the United States and the whole world. It is said to be also driven by a desire to encourage foreign bondholders to buy more Treasury securities. The United States Secretary of the Treasury occasionally states that the U.S. supports a strong dollar. The policy keeps inflation low, encourages foreign investment, and maintains the currency's role in the global financial system. 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. The strong dollar policy arose in response to the use of the exchange rate weapon. A strong currency helps domestic importers as their currency buys more, benefits foreign exporters as their exports garner more, hurts domestic exporters as there are not as many foreign buyers, and harms foreign importers as they cannot buy as much. A weak currency does the opposite of the above. They are summed up in the tables below. 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. This prompted the G-10 Smithsonian Agreement, a temporary agreement negotiated in 1971 among the ten leading developed nations in the world. The agreement pegged the Japanese yen, the Deutsche Mark, and the British pound sterling and French franc at seventeen percent, fourteen percent, and nine percent, respectively, below the Bretton Woods parity. These proved unsustainable. Later in 1971, U.S.
