The Threat of U.S. Dollar Overvaluation: How to Calculate True Exchange Rate Misalignment & How to Fix It

This memo explains (1) the dollar overvaluation problem, (2) how to accurately calculate the dollar’s misalignment against trading partner currencies, and (3) how the Market Access Charge (MAC) that CPA and others favor would fix this serious threat to America’s future.

by Michael Stumo (CEO)
Jeff Ferry (Research Director)
and John R. Hansen (Advisory Board)

The foreign exchange value of the national currency should play the pivotal role in bringing excessive trade deficits (or surpluses) back into balance. Unfortunately, however, exchange rates have lost their link with trade balancing equilibrium pricing. The graph below shows very problematic over and undervaluation of major US trading partner currencies calculated in the manner shown in section 2. 

We propose a new policy tool, the Market Access Charge, to move the dollar back to a competitive, trade-balancing exchange rate.


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