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Paulson supports a strong dollar -- and a weaker one

Section: Daily Dispatches

Paulson Backs Strong U.S. Dollar

From Reuters
Monday, July 23, 2007

WASHINGTON -- U.S. Treasury Secretary Henry Paulson repeated on Monday that a strong dollar was in the U.S. interest and currency values should be set in free and open markets.

"We feel very strongly, I do, that a strong dollar is in our nation's interest," Paulson said on CNBC television. "The dollar's value should be determined in a competitive marketplace, based upon underlying economic fundmaentals."

He added that he felt the same way about the value of other currencies.

The U.S. dollar's value has declined for five consecutive weeks, battered by turmoil in U.S. credit markets due to worries about fallout from mushrooming defaults in the subprime mortgage sector. On Monday the greenback recovered slightly from a record low against the euro of $1.385 and stabilized at near 12-year lows against a basket of other mojr currencies.

Although the dollar's depressed value has boosted U.S. exports, the Federal Reserve last week expressed concerns that its lower exchange value may be adding inflationary pressures.

Paulson has repeatedly said a strong dollar is in U.S. interests, but he has also been urging China to allow its yuan currency to rise in value against the dollar to ease growing trade imbalances.

Paulson also told CNBC that the subprime mortgage problems could be contained and would not hurt the overall economy.

"There has been a very significant housing correction. I think we're at or near a bottom there," Paulson said on CNBC. "I don't deny there's a problem with subprime mortgages but ... it's quite containable."

Paulson said the economy was "very, very healthy" despite the problems in the subprime mortgage lending sector.

However, he added that the United States needed to continually review its business tax structure to stay competitive in global trade.

Statutory U.S. corporate tax rates are now higher than those of most major trading partners and the U.S. needs to review what changes are necessary to encourage more investment, which he said would boost productivity and drive wage gains.

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