Mnuchin Says Strong Dollar Helps, for Now, in Financing US Debt

(Bloomberg) -- Former Treasury Secretary Steven Mnuchin said a strong dollar is an advantage in helping the US to finance large fiscal deficits for now, but called on the winner of November’s presidential election to lead a new initiative to rein in the federal debt burden.

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“I think it is a good thing,” Mnuchin said when asked if the dollar’s strength was positive for the US economy. “For one, the dollar is the reserve currency of the world, and that’s allowed us to finance these very large deficits.”

The dollar has soared some 13% against the Japanese yen over the past 12 months, with smaller advances against other major currencies. Confidence in the greenback as a store of value over time has helped support demand for US Treasuries, the largest and most liquid bond market in the world.

Mnuchin served under former President Donald Trump, who sometimes advocated for a weaker exchange rate to help the American trade position. In July 2019, he said a very strong dollar “was a beautiful thing in one way, but it makes it harder to compete.”

“I think the dollar will continue to be the reserve currency for the foreseeable future — but we have a responsibility to get our financial situation back in shape,” Mnuchin said Tuesday on Bloomberg Television’s Wall Street Week with David Westin. “Over time, this is something we can’t be reliant upon,” he said of a strong dollar helping support demand for US federal debt.

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Mnuchin, who now runs private investment firm Liberty Strategic Capital, said whoever becomes the next president should start working with the House and Senate to address the budget deficit. In February, the nonpartisan Congressional Budget Office projected the deficit to swell to $2.56 trillion by 2034, from $1.58 trillion this year.

“These deficits are going to come back and be a real problem,” Mnuchin said. “My recommendation would be to establish a bipartisan commission and start reviewing this now.”

The former Treasury chief also said he was concerned that sanctions on Russian and Iranian oil are not being fully implemented. “We’re seeing flagrant violations of those and I think that has to be enforced.”

There needs to be “healthy debate” about what to do with frozen Russian money, he also said. “Using Russian money to rebuild Ukraine after the war is something that should be seriously considered,” he said.

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