President Donald Trump’s call on Wednesday for the U.S. to manipulate its currency to boost exports is in direct conflict with the long-held view of at least one key scholar: his newest pick for the Federal Reserve board, Judy Shelton.
Shelton, who advised Trump’s presidential campaign and is now U.S. executive director for the European Bank for Reconstruction and Development, has spent decades calling for a more stable, predictable dollar value.
Story Continued Below
She wants central banks to do as little as possible to interfere with markets. As part of that, she thinks the Fed should more aggressively reduce the massive portfolio of bonds that it purchased to prop up the economy after the financial crisis.
But Trump wants the Fed to buy more bonds to inject additional cash into the economy.
“China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA,” the president tweeted. “We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!”
Trump said Tuesday he intends to nominate Shelton and St. Louis Federal Reserve economist Christopher Waller to the Fed board, his latest attempt to assert control over the central bank and pressure it to cut interest rates to spur the economy. The president has spent months haranguing Fed Chairman Jerome Powell and the other board members — most of whom he appointed — for not cutting rates.
Shelton, like Trump, has condemned practices by nations like China that have historically interfered in foreign exchange markets to make their exports cheaper in comparison to other countries (although many experts, including at Trump’s own Treasury Department, don’t believe that any country currently meets the definition of currency manipulator).
Yet she has a very different idea of how to prevent those kinds of shenanigans: pegging currencies once again to the value of gold.
Shelton has suggested that the gold standard could be reintroduced by having Treasury issue bonds that are redeemable in either dollars or gold. She has said that such an example set by the U.S. would lead other countries to adopt a similar approach.
“At the beginning, governments of sovereign nations would elect to participate on a voluntary basis,” she wrote in 2012 in a journal published by the libertarian Cato Institute. “Eventually, however, governments might even be removed from the business of producing money.”
In that same paper, she warned about “excessive issuance of money,” which can produce inflation and “ominous asset bubbles.”
She has called the Fed’s 2 percent inflation target “an egregious violation of your property rights” and said the goal should be no inflation instead, a position that would necessitate higher interest rates. But Trump’s calls for lower rates and more cash in the economy would likely fan inflation, which is currently below 2 percent.
Still, since reports emerged that she was on the short list for the Fed, Shelton has publicly called for dropping rates to as low as zero — a sharp departure for someone who for years said the Fed’s efforts to keep rates low was making “suckers” out of savers while helping “wealthy investors and corporate borrowers.”
She told the Wall Street Journal that rates should be reduced to support Trump’s pro-growth agenda.
“When you have an economy primed to grow because of reduced taxes, less regulation, dynamic energy and trade reforms, you want to ensure maximum access to capital,” she said.
The White House declined to comment. Shelton could not be reached for comment.