President Trump disparages China and Europe for "playing big currency manipulation," meaning deliberately weakening their currencies against the U.S. dollar. Trump, meanwhile, wants to weaken the U.S. dollar to shrink the nation's trade deficit and boost gross domestic product. And there is speculation this may happen. Can he do this and will it be effective?
I don't think so. There are two main ways to force a weaker greenback.
The first is through central bank intervention. This may work for a currency such as the Chinese yuan as its trading volume is still quite low and Chinese authorities have the ability to restrict speculative movements. But it will not work the same way with the U.S. dollar, the reserve currency of the world. Given a daily turnover in the foreign exchange market of $5 trillion, the U.S. central bank's foreign exchange reserves of merely $127 billion are absolutely no match to counter any free-flowing trading forces in the market.
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