US Secretary of the Treasury John Snow on Tuesday renewed support for a strong dollar but stressed that financial markets must be the final arbiters of currency values.
Snow said he and US President George W. Bush both backed the US policy of having a strong dollar.
"That's been a long-standing policy," Snow told the CNBC financial news television network. The US government has articulated a "strong-dollar policy" since 1995.
"But we also say that the value of the dollar for international exchange purposes ought to be set on open competitive currency markets with interventions kept to a minimum," the US economic chief said. "We always point out that nobody can devalue themselves to prosperity. We have really cast our lot with competitive exchange rates, with floating exchange rates."
The dollar plunged in May when Snow said he backed a strong-dollar policy but added that its market value was only one element of this alongside other qualities such as being a good medium of exchange.
The comment was taken by markets as a sign that he was comfortable with a weakening of the dollar. Bush's administration quickly denied it had abandoned the strong-dollar policy.
In his latest comment, Snow again touted the benefits of floating exchange rates.
"We think that's good policy both for the countries that practice it, like ourselves, and Europe, and good for the international trading system," the treasury secretary said.
Snow encouraged China to widen the trading band of the yuan, which now is basically fixed at 8.276 to 8.28 yuan to the dollar.
"I'm encouraged really from things that we are hearing from the Chinese, that they are willing to look at widening that peg. That would be helpful," he said.
"But they ought to do it in conjunction with some basic banking [and] monetary reforms -- transparency, corporate governance -- because those go hand in hand with moving towards market exchange rates."
Meanwhile, the death of former Iraqi leader Saddam Hussein's two sons helps the US economy by removing some uncertainty, Snow said Tuesday.
Snow was asked by a reporter for his reaction to Wall Street's bounce after news of the deaths emerged.
"Well, I think anything that removes uncertainty about the course of progress in Iraq is positive, and that certainly removes some uncertainty," he said. "One more vestige, hopefully, of the Saddam regime is gone."
The aftermath of the Iraq war still weighed on US consumers' minds to some extent, Snow said.
"I think it will continue to be there some until we clarify that situation and get the Iraqi economy back on a better course, get the oil flowing, deal with the sabotage to oil facilities, and vandalism," he said.