Core Viewpoint - The article discusses the recent decline of the US dollar, highlighting its lowest performance since March 2022, and explores potential policy measures to address the overvaluation of the dollar while considering the implications for US assets and debt pressure [1]. Group 1: Currency Policy and Risks - The demand for reserve assets leads to a deviation from normal trade balance, primarily due to an overvalued exchange rate, which can be corrected through tariffs or addressing undervalued currencies of other countries [2]. - The pursuit of a fair value for the dollar may reduce its attractiveness to foreign investors, potentially leading to a significant decline in the value of US Treasury securities [2]. - A 15% decline in the value of US Treasury bonds could negate over one-third of expected interest payments, raising concerns about capital outflows amid existing fiscal deficits and inflation risks [2]. Group 2: Multilateral Currency Policy Agreements - Historical multilateral currency agreements, such as the Plaza Accord and Louvre Accord, have been effective in adjusting the value of the dollar, but current economic conditions differ significantly from those in the 1980s [5][7]. - The US government aims to use tariffs as leverage to negotiate currency agreements with trading partners like Europe and China, but these countries are unlikely to agree to currency adjustments due to their own economic challenges [7][9]. - The current distribution of reserve assets is concentrated in Middle Eastern and East Asian countries, complicating the implementation of multilateral agreements compared to the past [9]. Group 3: Unilateral Currency Policy Approaches - The article suggests that the Trump administration could explore unilateral measures to address the overvaluation of the dollar without relying solely on the Federal Reserve's interest rate policies [11]. - The International Emergency Economic Powers Act (IEEPA) could be utilized to impose fees on foreign official holdings of US Treasury securities, making reserve accumulation less attractive [12]. - Gradual implementation of such policies is recommended to mitigate potential adverse effects on the dollar and financial markets [12][14]. Group 4: Accumulation of Foreign Currency Reserves - The US could mimic some trading partners by accumulating foreign currency reserves through purchasing dollars and selling them for other currencies, thereby increasing demand for those currencies [16]. - Utilizing the Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA) are potential methods for accumulating foreign reserves, though they come with risks and require careful management [17][18]. - The article emphasizes the need for cooperation between the Treasury and the Federal Reserve to effectively implement these strategies while maintaining the Fed's credibility in managing inflation [18][20].