Summary: GAO discussed the strength of the dollar in international markets, focusing on the reasons for the strength of the dollar and on possible solutions to the problems posed for American businesses by a strong dollar. GAO stated that the reasons for the dollar's strength include: (1) the attractiveness of investments in the United States; (2) international expectations of continued low inflation in the United States; and (3) the widespread perception of the safety and stability of the investment climate in the United States. As a result of the strong dollar, the price of American products has increased relative to foreign products; this hampers the ability of American businesses to compete in both domestic and foreign markets. Various methods for lowering the value of the dollar against other currencies include: (1) changes in American economic policies; (2) Government intervention in foreign exchange markets; (3) imposition of capital controls in the United States; and (4) greater international coordination and cooperation as regards economic policy. GAO cited problems with each approach, including: (1) renewed inflation if monetary growth were accelerated; (2) market forces which could overcome efforts at Government intervention in foreign exchange; (3) increased interest rates caused by capital controls; and (4) the difficulties inherent in subordinating national interests to international economic coordination. GAO believes that the solution lies in balancing fiscal and monetary policies designed to attain both domestic and international goals.
