Greenspan indicates continued weak dollar policy

The American Federal Reserve Chairman Alan Greenspan indicated Friday that the United States might continue to carry on a weak dollar policy to check the roaring of the American trade deficit.

He told a meeting of Advancing Enterprise 2005 in London on the eve of a finance ministers' conference of the world seven richest industrialized nations that a weaker dollar and tougher budget discipline, among others, may finally start to restrain the trade deficit.

Through November, the US trade deficit in goods and services was running at a record annual rate of 612 billion US dollars, far above the previous record deficit of 497 billion US dollars set in 2003. It also runs a bigger budget deficit.

So far Washington has been depending heavily on the willingness of foreign central banks and investors to buy and keep the US assets such as dollar-denominated stocks and bonds to support its deficits.

Some worried that the soaring level of US assets in foreign hands, in the context of a dollar that has been falling in value for three years, will at some point raise concerns among foreign investors and they will begin dumping their US assets, causing stock prices to plunge and US interest rates to soar.

But Greenspan said that a weaker dollar, by making foreign goods more expensive to American consumers and US exports cheaper for foreigners, should narrow the deficit.

The US dollar fell sharply in November after Greenspan expressed concern in Berlin about the increasing amount of money that America is borrowing from abroad to finance its record trade deficit.

But he said any forecast of where the trade deficit is headed could prove to be wrong.

He also said he believed any adjustment in the trade deficit will be accomplished "without any significant consequences to aggregate economic activity."

Source: Xinhua