Former US Treasury Secretary Robert Rubin warned that the dollar's recent decline could accelerate and interest rates could rise if politicians in Washington don't act quickly to narrow the federal budget deficit.
Rubin's comments Monday night came on the same day that the dollar fell to a record low against the euro, the five-year-old currency used by Germany, France and 10 other European nations. Each euro is now worth about US$1.30, up from about US$1.19 in May and an all-time low against the dollar of US$0.82 in October 2000.
"If I were still at Treasury, I'd still be a strong advocate of a strong dollar policy," Rubin said in a speech at the 29th anniversary dinner of Columbia University's Knight-Bagehot business journalism program.
That amounts to at least a veiled criticism of the Bush administration, which some critics contend is allowing the dollar to gradually weaken against key foreign currencies so as to make US-produced goods cheaper in export markets.
Rubin, who now is chairman of the executive committee and a member of the office of the chairman of Citigroup Inc, sounded a wide-ranging warning about the potential impact of continued federal deficits.
"If markets begin to fear long-term fiscal disarray and if foreign providers of the capital inflows upon which we have now become so enormously dependent share this fear and also develop a concern about our currency, then the markets may begin to demand sharply higher interest rates on long-term debt and possibly even create conditions of serious disruptions in our financial markets, with all the problems that that can lead to for our economy," he said.
And he added, "We have a lot of work to do in a very difficult political environment."
Earlier on Monday, European Central Bank President Jean-Claude Trichet described the recent increase in the euro's value against the dollar as "brutal" because of the pressure it puts on Europe's largely export-driven economic recovery.
Rob Nichols, a US Treasury Department spokesman, responded to Trichet's comments by saying the country's strong dollar policy remains unchanged and "with regard to the budget deficit, we have laid out a plan to cut it in half in five years. We are committed to the plan. We are achieving that plan."
Rubin, who was an adviser to Democratic presidential candidate John Kerry, was Treasury secretary under former president Bill Clinton between 1995 and 1999.